Almost every business has been affected by Coronavirus in some way, and for many of us, this year’s profits are taking a hammering.
But business survival isn’t just about being profitable - it’s about CASH.
Susie Kevern of Pound Lane Financial Management looks
at some of the pressing questions that she is discussing with clients.
1. I Have More Cash Now Than I Thought I Would - Why?
You have probably taken out a loan, used the VAT deferral offer, or both, and you’ve cut back spending to a minimum. But if you normally hold stock, or give your customers credit, then stopping sales (and therefore running down stock), would actually improve your bank balance.
2. Surely The COVID Crisis Can’t Be Good For Business?
In the short term, it probably helped your bank balance, but problems arise when customers start buying again.
To meet new demand, you’ll likely need to bring back furloughed staff, and buy new stock that won’t be paid for – at least for another month.
When you have used up your capital reserves to stay afloat, and your bank balance has run down, you will need cash to invest in order to restart your business.
With cashflow, you always need to look further ahead. As well as paying suppliers and staff, there are some big bills still to come; Corporation Tax for last year, Self Assessment Tax, and VAT that was deferred in March, are all due to be paid before March 2021 – just before the repayments on any new loans start. For most, if not all businesses, 2021 could end up being tougher than 2020.
3. What Can I Do?
A plan for the future is vital, which means some sort of cashflow forecast – even if it’s just a rough estimate. This will allow you to see if and when you will be under pressure, and give you time to put a plan in place.
Looking after your profit margins is an obvious first step, but saving cash isn’t just about reducing the expenses in your Profit and Loss Report (P&L). You need to think about how much cash goes out of the bank. Buying in bulk to get a discount may actually make things worse if you have to pay for it all in one lump sum.
Think about the other payments that leave your bank too; can you renegotiate existing loan and HP repayments now, or spread annual costs over monthly instalments?
Your customers and suppliers will likely be in a similar situation to you, and may be trying to look after their cash. Negotiating discounts in exchange for faster payments may be a vital tool in keeping afloat.
4. How Much Should I Tell My Staff?
Let’s face it, your staff are fully aware of what’s going on in the world, so there’s no point in trying to assure them everything is fine.
Honesty is always the best policy. Staff will be worried about the future; sharing some of your news and views regarding how you expect the landscape to look when the economy gets back on its feet, may help them understand the decisions that you are making, and to feel more secure.
The same applies to suppliers; if you think you might have problems keeping up with payments, then it is best to get in touch with them. Nothing creates fear and anger like unpaid bills with no explanations.
5. Things Are Looking Really Bad; I’m Worried Because I Have Personally Guaranteed Loans In The Past
If you are worried about your circumstances, make sure you are looking at up to date accounts for your business, and I can’t emphasise enough the benefit of a cashflow forecast, even if it’s basic. Knowledge is power.
It is worth getting advice sooner rather than later. Compare it to your health; if you are worried, everybody knows you should see a doctor to get specialist advice about whether your symptoms are normal, or if you need to take action. The same applies to your business.
Often, if you act early, there are opportunities to negotiate or restructure debts to give viable businesses the chance to survive, rather than being sucked into a spiral of overwhelming debt repayments.
Worst case scenario, the government has made emergency changes to the law to protect businesses badly affected by the Coronavirus pandemic. As such, you can speak to an accountant or insolvency practitioner – without fear of losing control of the situation. Asking for advice now shows that you are managing your business carefully and allows you to make appropriate decisions.
6. What Does The Future Hold?
The one thing that we can say for certain is that we are not going to return to our idea of ‘normal’ any time soon. As always, the key thing to think about is how that affects your customers and markets.
Are there opportunities to deliver the same products in different ways, or add different services to meet your customers’ requirements? If you applied for a Bounce Back Loan, and you have some cash left over after taking care of the bills, why not invest it into developing your business to meet new demand?
Remember, businesses get into trouble when they run out of cash.
Having good information allows you to plan for the future, and take action to set your course – not just for survival, but more importantly, for success.