COVID-19: Why You Should Sort Your Cash Flow Before Claiming Government Help

 In Small Businesses & Startups

The spread of Coronavirus has already caused enormous problems in the economy. The IMF believes the impact will be at least as bad as 2008. Businesses have been told to shift to homeworking or shut entirely. Understandably, they are nervous and, despite Government help, many small business owners will worry about whether they can survive the other side. 

The first major casualty was Flybe, although in their case Coronavirus might simply have been the straw which broke the camel’s back. Upsolve, a tool which says it helps people declare themselves bankrupt, says it is already seeing its first Coronavirus related cases. 

Government protection

The situation is urgent and the Government have announced a series of measures to protect small business including: 

  • Insolvency rules: To protect businesses, the UK has changed its insolvency rules. Wrongful trading rules will be suspended to protect those businesses who decide to pay their staff through the crisis. Under the plans, companies will be allowed to continue paying staff and suppliers even though there are fears the company could become insolvent. 

Speaking at a press conference, the UK’s Business Secretary Alok Sharmer said the decision would help businesses “emerge intact the other side of the Covid-19 pandemic.”

  • Loan guarantee: A business interruption loan scheme for any viable business with a turnover up to £45 million, offering loans up to £5 million. Interest payments and lender levied fees will be covered by the Government for up to 12 months. The scheme is available through 40 accredited lenders and the Government will guarantee 80% of the lending facility. 
  • Covid Corporate Financing Facility: Aimed at larger firms, this scheme will purchase short term corporate debt to provide companies which are fundamentally strong but are struggling with a way to raise working capital. To qualify, a firm has to demonstrate it was in sound financial health before the outbreak.  
  • Protection from eviction: Businesses which are unable to pay their rent will be protected from eviction for three months. Some landlords, such as Fullers, have gone further and told their businesses there will be no rent payments until business resumes.
  • Tax holidays: Time to pay arrangements have been announced for businesses and individuals who are struggling to pay their tax returns.  

However, the biggest package of support is the wage guarantee scheme which will see the Government effectively nationalise the private sector. They have promised to cover 80% of individual salaries up to a value of £2,500. 

Rather than lay off staff, as some businesses have already done, you can place members of staff on furlough. You may decide to only pay what the Government has provided or top up the extra yourself.   

However, businesses will be expected to pay the wages until they receive the money from the Government. With no business coming in, this still creates a major cash flow headache in the meantime. To survive, businesses will still need to get a real grip on their cash flow.  

Financial management

This will be crucial not only in helping the business survive through this difficult period, but also to improve your chances of getting Government help. At this time when your finances will be under enormous pressure, you will still need to show that, without the crisis, you are in sound financial health. Books which are out of date, inaccurate and don’t have clear projections for the future, will not look good.

To boost your chances, therefore, you’ll need to improve your finances, and do everything you can to boost your cash position.

  • See the real picture: Support is being offered to businesses who can demonstrate a clear grasp of their finances. For this, you will need to improve cash flow forecasting which is one area many small businesses often slip up. It’s not enough to think about how much business is coming in or operating margins; you will need a clear idea of how much cash you’ll have available at the end of the month. 

This will be particularly important if you’ve deferred any payments as you could see spikes of expenses occurring at unusual times of the year. 

  • Get cash in the bank: Admittedly, this is easier said than done, but you must try everything you can to get cash into the bank. You may be able to sell unwanted assets to give yourself a boost as well as making sure you have a robust overdraft facility in place. 
  • Chase invoices: Invoice payments can be unstable at the best of times, but this will become an even greater concern for businesses. Do everything you can to understand what invoices are outstanding and chase them up. It’s worth sending more timely reminders to clients who may have other things on their mind aside from paying your bills.
  • Sort out tax: Make sure any outstanding tax has been paid off to improve the chances of being approved for time to pay arrangements for income tax. 
  • Turn orders into cash: The big concern for businesses is not only if new contracts will come in, but how reliable clients can be about payment. Each of those businesses will be facing their own financial pressures and there is no guarantee how healthy their cash position will be when your current invoices become due. It might be a good idea to start requiring deposits if you don’t already. Aside from giving yourself more confidence that the invoice will be honoured, it may also help your short-term cash position. 
  • Keep the situation under review: Now will be a really good time to improve the visibility of accounts. As we’ve already seen, the situation is continually changing. The Government, like everyone else, is essentially making things up as they go along, so their rules, guidelines and support packages could change every day. 

Volatility in the wider economy could be reflected in your own finances, so it pays to keep a much closer eye on them. You’ll need a system which can give you a real time view of your true financial position and which allows you to conduct regular reviews. That way, if your financial position changes, you can adjust course. Such uncertainty will shine a spotlight on your accounts systems. At the best of times, the businesses which are most likely to survive will be those who have got their finances in order. That is even more important now. Hiring specialist accounts teams to help with planning or upgrading to accounts software, could be key in giving you the greater visibility you need to navigate your way through these difficult economic waters.

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