Deferrals, the creation of the Job Retention Scheme, access to grants - there can be no doubt that the Chancellor tried to limit the number of business failures as a direct result of the COVID19 pandemic. But whilst the actions taken undoubtedly eased the immediate pressure, there remained an underlying concern that those difficulties would only be postponed.
Remember - Deferrals are not Debt Forgiveness!
However, one of the key things to remember is that a payment holiday is a postponement – any liabilities that have been postponed will need to be paid at a future point in time. Any payments that have been deferred need to be factored into your cash flow forecast to ensure that they are not missed once your business starts trading again.
If your business has been in lockdown for any period of time, then it is logical to expect that you will be utilising existing cash reserves to meet any payments that are necessary at this time. Even once trading again, there will be a lag in collecting cash as the working capital cycle starts back up and business are more mindful of holding on to their cash and paying later. There may come a point when you will need to be able to access external funding to help you trade through the initial period post-lockdown.
Accessing Cash
The CBILS and BBLS schemes are due to expire on 31 March 2021, with the alternative Recovery Loan Scheme due to replace it from 1 April 2021. All of these schemes have been aimed at providing additional working capital into a business where it has been affected by COVID19.
Your existing bank or provider of finance should be the first point of contact if you need additional support. If they are unable to help then there are other sources of finance, both through accredited lenders and alternative providers in the ‘normal’ lending market. If you need some guidance on accessing additional funding, our Cash flow Experts can assist you.
Increasing Debt Obligations
Whilst additional funding may be required, caution should be exercised when opting to increase your debt obligations. Used in the right way, debt can be a good way to expand or support your business operations but you also increase the finance risk of your business too.
When looking at borrowing money, like with the deferral position mentioned above, you also need to understand how you will repay the loan. In the event of any reduction in turnover or cash collection, will your business be able to maintain the loan repayments without needing to refinance?
In addition, where you have an existing facility in place with your bank, ensuring that additional borrowing does not breach the terms of the existing covenant is important – even additional borrowing without any security can have an impact on some banks’ covenants. Taking advice on this issue will help you stave off any challenges at a later date and make sure that as a director you are able to maintain control of your business if it does not recover as quickly from the lockdown as you might have anticipated.
Again, using a 12 month cash flow forecast will help you to understand the cash implications of any borrowings on an operational level.
Using Forecasts as a Decision-Making Tool
Understanding your cash position in the short- and medium-term will help you to assess what steps you will need to take in order to keep your business moving. Devising forecasts with different scenarios will help you understand what your options might be. This will allow you to consider the impact of any additional borrowing on your business, on varying levels of turnover. It will also help you to estimate how much stock you are likely to need, how quickly you can expect your working capital cycle to return to some semblance of normality and will identify any areas which might need particular focus once you restart.
Once you have ascertained what your future position is likely to look like, that will help guide you as to what steps you need to take next and whether you need any external support to assist you with implementing your plan.
Seek Advice Early
Cash (or lack of it) has been an issue for many businesses, no matter what size they are. Whilst some have managed without any external assistance, there will be many others who will be facing a cash shortfall in the not too distant future, especially if they have been adversely affected by the lockdown restrictions. As restrictions ease, many businesses will start incurring increased costs in advance of revenues being collected and will have to fund that early trading period out of cash.
If you are one of those business owners that are looking at a cash shortfall and are worried about having sufficient working capital to get moving again once lockdown is over, seeking advice now will be the key to your future success as it will give you a chance to iron out the issues you may be facing before we exit the lockdown period.
In Summary
Any payment obligations that you have deferred for the time being will need to be repaid in the not too distant future. Ensuring that you have a plan to exit the lockdown period with cash to fund your working capital cycle will set you on the path to success. Being a business owner can be a lonely place at the best of times, but in this uncertain period, that loneliness can be compounded. Talking to someone outside of your business can help you to look at the challenges you are facing from a different perspective, and help you deal with those challenges.
Whether you are struggling to access external funding, have concerns about your ability to recommence trading once the lockdown ends or would just like to talk to someone about the challenges you are currently facing, please get in touch with our team who will be more than happy to help.
For more information or advice, please contact the team on 0808 1445575 or email at covid19help@armstrongwatson.co.uk.
