Cash is king – how to protect your business in extraordinary times

Covid-19 Advice | Employment & Skills | Legal

The speed at which the coronavirus has struck at the heart of the global economy has been overwhelming, writes Helen Bassett, Director, assurance and business services at Smith & Williamson in Bristol.

With a public health crisis and an invisible enemy, businesses all over the UK are waking up to a daily dose of unwelcome change and uncertainty. In some cases, businesses will be faced with an almost total loss of demand, while for others demand will soar.

In these extraordinary times, it’s important to remember that normality will return.

While nobody can predict the timetable, the focus for all of our entrepreneurs and business owners must be to protect their businesses and, wherever possible, the livelihoods and wellbeing of their employees.

There is a saying – “Revenue is vanity, profit is sanity, but cash is king”.

Put another way, businesses don’t fail because of a lack of short-term profitability, they fail because they run out of cash.

The good news is that our government is fully aware and alert to this challenge. A series of unprecedented measures have already been announced and these will be amended and fine-tuned as we go along.

One way or another, there is a multitude of ways in which businesses can both create and conserve additional cash and we are setting out some suggestions here.

  • Review your business plan, identifying short term goals

If you are experiencing a lack of (or even increased) demand which could lead to future cash flow challenges, long-term ambitions may need to be set aside to protect your business in the short-term. Consider your business plan and decide which elements need to be changed, accelerated or curtailed. Do this now! Make sure that every member of your team is focusing on your key priorities, making every moment count.

  • Reforecast likely sales and cash flows for both the short and medium-term

Be realistic about the likely impact on future sales and costs and work with your finance team or external advisers to reforecast your short to medium-term cash flows. Talk to your suppliers, fine-tune your buying, examine your day-to-day costs. Remember that falling sales may reduce your working capital requirement (eg debtors, stocks) and generate additional cash. Given the fast-moving situation, make this a weekly activity.

  • Review banking arrangements and covenants

Your bank is an essential trading partner, so you will need to keep it onside. Highlight any challenges or the likely need for support as early as possible. Be professional, plan ahead for meetings and ensure that any presentations or proposals are clearly set out, detailed, accurate and realistic. Know what is due and when, maintain regular communications and be mindful and respectful of any covenants. Finally, remember that banking relationships are built on trust.

  • Review capital commitments

If you have recently committed to acquiring new assets for your business – cars, computers, machinery, etc – can you put these on hold to conserve cash? Remember that cash always takes precedence over short-term profitability.

  • Access to government-backed funding – Business Interruption Loans and how to get them

The government has recently launched the Coronavirus Business Interruption Loan Scheme (CBILS). Loans of up to £5m are available to UK-based businesses in eligible (most) sectors, provided that their turnover is no more than £45m. This support is only for ‘viable’ businesses and is at the discretion of the lenders, who will be comforted by the government’s 80% guarantee but still wary of the risks they will be assuming on the remaining 20%. Finally, the government has agreed to cover the first 12 months of interest payments.

This is a great scheme for those that need it and can gain access and will kick in where businesses have a sound borrowing proposal but insufficient security.

For further information visit and view the detailed pages on the Coronavirus Business Interruption Loan Scheme to find accredited lenders.

  • Access to government-backed funding – Brand new Job Retention Scheme

The government’s plans to protect jobs have led to the introduction of the Coronavirus Job Retention Scheme, enabling businesses to recover 80% of certain workers’ wage costs, up to a cap of £2,500 per month. The funding for this will be unlimited and all UK businesses, small or large, charitable or non-profit, are eligible for the scheme.

In order to claim, employers will need to designate affected workers (those who would have been laid off but for the introduction of this scheme) as ‘furloughed workers’ and notify them of this change. Employment law will continue to apply, so legal advice and/ or negotiation may be required.

Once agreed, employers will need to submit information to HMRC about the relevant employees and their earnings through a new online portal (HMRC will set out further details of the information required).

HMRC is working urgently to set up their systems, which are not currently able to facilitate payments to employers.

Other government support 
  • Grants

Small businesses may be eligible for cash grants. The government has proposed a 12-month business rates holiday for all retail, hospitality and leisure businesses in England. All businesses in receipt of small business rate relief or rural rate relief can claim small business grant funding of £10,000, rising to £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000. Any enquiries on eligibility for, or the provision of, the reliefs and grants should be directed towards the relevant local authority.

  • VAT deferral for all businesses

All businesses are now able to defer their VAT payments for three months. This deferral will apply to VAT due for the period from now until June30 and any accumulated deferral will not need to be paid to HMRC until the end of the 2020/21 tax year. This deferral is automatic and no application is required.

  • Income Tax deferral for all self-employed

All self-employed taxpayers can now defer their self-assessment payments due on July 31 until the end of January 2021. No application is required and no penalties or interest will be charged in the deferral period.

  • Alternative funding opportunities

Asset-based lending options can also be a useful source of short-term financing. It is possible to borrow against invoices issued but not paid, for example. Businesses can also borrow against equipment and other assets.

Perhaps the cheapest way to borrow may be against your main residence. This can have some tax planning advantages.

  • HMRC time to pay

Small businesses can make arrangements to defer payment of their VAT or PAYE. HMRC has a dedicated phoneline for coronavirus-related challenges to help businesses unable to pay their taxes on time (Corporation Tax, Income Tax, PAYE, VAT) with options to defer or delay payment. The number to call is 0800 015 9559. Assuming that HMRC accepts your application, this can be a hugely valuable and fast route to conserving your cash.

In addition to the above, if you think you may be due a tax refund or tax credits, it will be worth getting your various returns in quickly to begin the refund process.

  • Accessing funding from pension schemes

In certain cases, businesses can borrow from their pension scheme, but this is subject to strict rules. Loans must be for investment growth only, rather than being used to prop up a business in difficulties. They are limited to five years or less and must not be more than 50% of the assets of the pension scheme.

  • Government SSP support for businesses with less than 250 employees

The government will cover up to two weeks’ statutory sick pay per eligible employee who has been off work because of Covid-19. This relief is available to employers with fewer than 250 employees. A rebate scheme is being developed.

  • Reducing employee costs – part-time working/lay-offs/sabbaticals/job-sharing etc.

For many businesses this will be a last resort and will come with some legal implications. Tread carefully. Consider part-time working, sabbaticals or job-sharing as well as lay-offs, but make sure you consult with a lawyer first so you don’t incur even bigger bills further down the line.

  • Directors’ responsibilities – where to go for help in a crisis

If it looks as if you can’t continue, or you know or ought to conclude that your business can’t survive, remember your responsibilities and take advice. Sharing the burden may open up unexpected avenues to help you protect your business.

Helen Bassett of Smith and Williamson.

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