Ian Bird Business Adviser with Enterprise Agency Nwes looks at the problems faced and what to do.
- Understand your cash flow.
It is vital that you get to grips with the cash flow in your business. Often businesses work on monthly forecasting and management accounts, but it may be worth moving to a weekly, or even daily, basis. Review your financial records and work out incomings and outgoings for the past six months. This will help you plan realistically for the next six months. Things are likely to be harder going forward (unless you are in a business that works in healthcare, pharmaceuticals or anything else corona-related) so it is good to establish a baseline for cash flow and work on a lower estimate.
- Be proactive about your business debtors.
We’re all in this together and need to work in partnership to keep cash flowing right now. Don’t be shy about pursuing payment but be mindful that your debtor may also be trying to balance their books. Contact debtors before your invoice becomes due to make sure:
- it has reached the right person or department
- there are no issues that will prevent payment
- that it will be paid by the deadline
This way, if there is an issue with payment, you can start a discussion early. Consider offering people payment by instalment if it will help them make the payment and keep your cash flow healthy. It is also sometimes worth offering a small discount for early settlement.
- Delay payments when needed.
Wherever possible, try to negotiate a delay to any payments you must make. If you are unable to pay your bills on time, make sure you let your creditors know as soon as possible – do not bury your head in the sand. They may be able to extend your terms temporarily. If you rent premises, one of your main creditors will be your landlord so contact them to see if they are willing to wait longer for your rent payment. Always try to pay freelancers, microbusinesses and any business-critical suppliers in full and on time. Their cashflow may be more vulnerable than yours and delayed payments could have serious consequences for them or for your business.
- Reduce your spending.
Review and categorise all your expenses:
Where you can do so
- immediately cancel anything unnecessary
- decide whether to continue anything optional
This leaves more money to service critical spending.
- Take full advantage of financial support.
Regardless of whether you currently need it, take full advantage of the financial support available. Whether that is payment holidays from lenders, SSP refunds from government, or tax and rates relief. This can help increase the distance between you and future financial difficulties. Check out our regularly updated article on support for businesses during coronavirus.
- Speak to your creditors and your bank.
If you have existing borrowing with your bank or other lenders get in touch with them as soon as possible to understand what their position is with the Coronavirus situation. Some lenders are giving repayment holidays, e.g. for 3 months, whilst we see how this situation plays out.
- Review your personal finance.
Personal finance providers and creditors are expected to be more flexible during the current crisis too. Having more money available to you personally may help with your business. Speak to your mortgage lender, utilities suppliers etc to find out whether they can offer any help to ease your current financial commitments. If you are a ‘vulnerable’ client, let them know. This could mean you are disabled, a carer, or have a small child at home.
- Explore additional finance options.
There are a range of ways to raise cash for your business, such as working capital loans, invoice financing and revolving credit facilities. The government have outlined a range of financial support schemes that businesses should review and explore fully. You might want to look at external investors, and whilst giving away some of your business might not be preferable, it might become essential.
- Talk to HMRC.
All businesses and self-employed people in financial difficulty, may be eligible to receive support with their tax liabilities via HMRC’s Time to Pay service. These arrangements are agreed on a case-by-case basis and relate to individual circumstances and liabilities. If you are concerned about being able to pay your tax due to COVID-19, call HMRC’s dedicated helpline on 0800 0159 559.
You can also explore Research & Development tax credits (it is available to businesses that have spent money in this area over the last 2 years) and could mean you get back a proportion of your spend. Please note that R&D tax refunds only apply to Limited Companies.
- Review staff costs.
When you’ve built a business from scratch, no-one wants to think about laying off staff. However, staff are a major expense. Look at the government schemes and look at furloughing staff. Look at wage reductions rather than redundancies to get through the current uncertainty. Review salary levels, particularly higher salaries, and plan an appropriate reduction. If redundancies are inevitable, make sure you understand who is business critical and aim to retain them. Plan any communication around this sensitive area extremely carefully.
Ian Bird provides advice through the New Anglia Growth Programme with is part funded by European Regional Development Fund.
Nwes is available to support new and existing businesses.