Our aim is to provide businesses with information and ideas that could help improve their financial resilience in response to the challenges raised by the coronavirus crisis.
Government Financial Support Schemes
The Government has announced several initiatives to support businesses.
Recovering cost of Statutory Sick Pay
Business Rates Holiday
Government Loan Scheme (CBILS, CLBILS & BBLS)
Corporate Finance Facility
Defer Tax through HMRC Time to Pay
Job Retention Scheme
Scotland, Wales and Northern Ireland
Customers: Aside from reassuring customers that a business is still open and can continue to service them, businesses can consider introducing new service or delivery options depending on the sector. B2B businesses will need to understand how their customers’ businesses are being impacted by the coronavirus crisis. To support cashflow, businesses may consider introducing upfront payments or different payment terms for their customers. If possible, asking customers to provide an order schedule will add both clarity and enable better planning from both parties’ perspectives.
Suppliers: Businesses need information on the ability of their suppliers to continue to serve them and of potential disruptions to supply chains that could impact them and indirectly their customers. Cashflow could be supported by asking for delayed payment or splitting payments over a number of months.
Employees: To minimise risks to employees and their families of contracting Covid-19 businesses need to communicate with employees effectively and to explore remote working options if practicable. Businesses should also consider the mental wellbeing of employees.
Shareholders: Shareholders will be looking for transparency in terms of business performance, particularly around impacts on turnover, cost mitigation and cashflow management.
Lenders: Lenders will be keen to engage and provide potential support through revised covenants and interest and capital repayment holidays. Early engagement and good transparency around cost mitigation and cash flow management is recommended.
Minimising and/or deferring business costs is critical during periods of reduced business activity. Accurate monitoring and forecasting of cash flow is also important, particularly, when seeking support from existing lenders. Areas to consider:
Check if you have business interruption insurance that covers pandemics and government ordered closure
Your utility provider may provide a payment holiday/deferral.
Even if you do not qualify for the government business rates deferral, you may want to contact your local authority for a payment holiday.
Speak with your landlord to see if there can be a deferral of rent for an agreed period. This is more likely if it’s a larger institutional landlord, however, private landlords may consider assistance if they can secure their own mortgage payment holiday from their bank/lender.
Reduction of director salaries/dividends
This might be an option alongside a request to your personal bank regarding a mortgage payment holiday (most lenders are providing a three month mortgage repayment holiday). July 2020 self assessment income tax payments are being deferred until January 2021 which may also assist with flexible drawings
If you have an existing loan with monthly repayments, you may want to ask for a repayment holiday to help with cash flow (or at least a capital repayment holiday). In addition it might be possible to agree a commercial mortgage payment holiday.
In addition to government support via the Coronavirus Job Retention Scheme you may consider reduced hours and/or salary cuts as options to making redundancies
Cash flow forecasting
Clear visibility of future cashflow is critical and having a robust cashflow forecasting process will also help identify potential cost savings. Sensitivity analysis covering different assumptions for future revenue and costs will identify points where cash balances could become exhausted.
Having this information will also be useful when discussing support options or additional funding requirements with lenders. For example, existing lenders may be more willing to relax covenants or offer capital and interest repayment holidays if there is good transparency on a business’s cashflow position.
To add further financial resilience, it may be necessary to secure additional capital.
Existing shareholders and potential new investors will require good transparency on the business’s performance and visibility of projected cash flow in particular. Existing shareholders will expect active engagement on a regular basis and, if considering further equity investment, may commit in tranches depending on achievement of performance targets.
Businesses should explore traditional and alternative finance sources of new debt capital including asset backed and cash flow finance. Potential lenders will be keen to see that a business has a realistic plan, a strong leadership team and a firm grasp on likely revenue and costs and how these impact cash flow in different scenarios.