COVID-19: What action should businesses be taking to mitigate the impacts?

The impacts of Covid-19 are far reaching. Almost every business will be impacted to some degree. So what action can businesses take to weather the storm? We have compiled a list of measures to help businesses trade through.

Less than a week after the March Budget, the Government have announced an extension to its support measures to help businesses overcome the disruption caused by Coronavirus. New measures include an increase in government backed loans to £330b, government grants of £10,000 to £25,000 for small businesses and an extension to the business rates holiday to include all businesses operating in the hospitality sector. The Government has also left the door open to announce further measures as and when required to support businesses suffering the effects of Coronavirus. We will be monitoring ongoing developments and can help businesses navigate their options.

During this difficult time there are a number of practical measures that businesses should seek to employ. These measures should be in place in the ordinary course of business, but are even more important in the current climate:

Business trading measures

  • Cash Flow Forecasting - However large or small your business is, in conditions such as these, all need a short-term weekly cash flow forecast (CFF), ideally 13 weeks forward, to identify critical receipts and outgoings. Your business’ immediate critical cash-flow pinch-point will likely be end of month with rent and payroll outgoings. Your business needs a CFF to gauge the working capital headroom for it to navigate the pinch-point. We can help your business prepare a realistic CFF; working capital management support is standard part of our toolkit

  • Focus on debt collection – Businesses can improve their cash flow by ensuring robust credit control functions are in place. Prioritise larger debts and those with larger customers as these will likely be better placed to continue on-time payment in the short-term. Consider offering small discounts for early payment, providing this does not inhibit profit margins.

  • Renegotiate supplier terms – Similarly to help with cash flow, businesses should seek to negotiate extended credit terms with its suppliers. This should be managed carefully to avoid being placed on stop with suppliers

  • Negotiate a rent holiday or switch from quarterly to monthly rent payment – Many landlords will be expecting a call from their tenants to request a rent holiday or change in payment terms. It is usually in the landlords interests to ensure ongoing occupancy in order to avoid empty property rates. Businesses should ensure they can demonstrate a business case with supporting financial management information.

  • Focus on cost cutting measures – Businesses should seek to eliminate non-essential overheads. Examples include reducing staff costs (where possible), seeking alternative suppliers and reducing opening hours.

We recently saw Rishi Sunak deliver his first Budget announcing various measures for businesses. We set out below these measures and will post any material updates on this website for your future reference.

  • Coronavirus Business Interruption Loan Scheme  - £330b of government backed (up to 80% government guaranteed) loans will be made available to encourage lenders to give loans to companies that would otherwise be deemed too risky. The scheme will delivered by the British Business Bank with more than 40 lenders providing funds as terms loans, overdrafts or asset based lending secured on invoices or equipment. To be eligible to businesses that have turnover of no more than £41m per annum, operate within an eligible sector and have a sound borrowing proposal but are unable to get access to finance via lenders normal requirements. Information on how to access this scheme can be found here.

  • Job Retention scheme Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. Employers would be able to secure grants from HMRC to cover 80 per cent of the wages, this would be up to a maximum of £2,500 per worker per month.

  • Government Grants – Small business grants of £10k for all business in receipt of small business rate relief or rural rate relief. Grant funding of £25k for retail, hospitality and leisure businesses with property rateable value between £15k and £51k

  • HMRC Time to Pay (“TTP”) – Following the March budget the Treasury have been encouraged by government to support impacted businesses via the TTP scheme. Businesses facing cash flow pressure can seek to defer payment of tax bills (PAYE, NI, VAT and Corporation Tax). Businesses should ensure robust forecasts can be made available to support their request and demonstrate ability to repay deferred tax HMRC Coronavirus Helpline number - 0800 0159 559.

  • Business Rates – have been abolished for one year for small firms (with a rateable value of less than £51k) in the retail, leisure and hospitality sectors. This includes hotels, restaurants and coffee shops. There is also a £5,000 business rates discount for pubs with a rateable value below £100k in England.

  • Small Business Rates Relief - The 700,000 smallest businesses who are already exempt from paying rates are now eligible for £3,000 in grants to help meet business costs.

  • Statutory Sick Pay Reimbursement – For employers with fewer than 250 employees, the government will reimburse statutory sick pay costs for up to 14 days, which is just under £200 per employee.

Where illegible, the above measures will provide short-term financial assistance to businesses. However, robust financial management information to include cash flow forecasts are essential for businesses to:

1.  Improve their chances of successfully accessing some of the above measures
2.  Identify the business' future cash flow position/needs.

Business finance measures

  •  Review customer relationships – Review the quality of your customer book. If customer contracts do not contribute a profit or are poor payers, consider the impact on the business and whether to renegotiate contracts or worse case, terminate. Poor customers often drain management time and can be a distraction.

  • Extending existing bank facilities - Businesses should consider approaching their existing bank to explore opportunities to extend existing facilities or if appropriate, re-organise facilities. Whilst such discussions can be difficult, your bank are likely to be encouraged that you are actively reviewing and managing finances. Robust financial management information will be required to assist discussions so ensure this is available before approaching the bank. Banks are offering holidays on loan repayment and are encouraging customers to get in touch to discuss options. Some banks, including Lloyds and Nat West, have already outlined funding packages worth £2bn and £5bn for small businesses

  • Invoice Financing – Invoice Finance, where cash can be borrowed against sales invoices raised, can help ease short-term cash flow pressure. Invoice finance will not be suitable for all businesses but can provide a one off cash injection to help cash flow. In the case of factoring it can also provide an ideal credit control mechanism. Invoice Finance does come at a cost so businesses should ensure it can absorb the cost in the medium to long term

  • Asset Finance. Whether it be through an existing or new lender, clients should establish if there is the ability to raise finance on unencumbered or existing part financed assets including property, chattels, stock, machinery etc.

  • Third party investment. Notwithstanding recent events, some sectors remain very popular with investors and clients can secure additional finance in the form of equity or additional borrowing.

  • Alternative Finance Providers - Consider emergency funding from alternative finance providers. Peer to peer borrowing has become very popular, but usually comes with strings attached, such as high interest rates, short repayment terms and the need for personal guarantees. Clients should be cautious about the ease with which such borrowing appears to be easily available and should probably consider this as something of a last resort. Using a reputable Commercial Finance Broker will provide appropriate access to such funds and they will assist in finding the right type of finance for your clients.

It's important to note that whilst many of the above measures can help to ease cash flow pressure, if the future viability of the business is in doubt, we recommend seeking professional advice to protect Directors against potential criticism and personal liability.

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