Drawing upon a combination of our commerciality, our technical insights into the announcements the Government are making, questions we are fielding from our clients, and our past experience of supporting businesses through economic uncertainty and challenges, we have compiled eight, practical tips for you to consider for your business.
1. Cash-flow is king
Expenditure: What is your essential cash spend today, tomorrow and next week? You may want to consider cancelling direct debits, standing orders and, effectively, turn off the taps to ensure you can keep cash reserves.
Payment terms should be reviewed for all key suppliers and lenders. Banks and hire purchase companies will want a dialogue with their customers and have publicly stated that they are open to supporting them.
Payment holidays, relaxation of covenants and additional lending through the Government loan initiatives should be discussed directly with your lender. Many landlords, especially in retail and hospitality, will be expecting their tenants to be asking for rent reductions. Given the prospect of a vacant building, a rent payment holiday may well be acceptable to them.
Income: Credit control policies must be robust, and it will be necessary to risk assess your customers and work proactively with those who are in most financial need. All unbilled work should be billed where possible. This should all be done in collaboration with your customers, speak to them early and often. Relationships forged in adversity will end up much stronger and lasting for the long term.
We share six top tips for managing your cash-flow in the following article.
2. Keep on top of Government help
The Government has announced a number of initiatives to help businesses and we expect these to expand as the situation continues. These indicative measures include the £330bn of Government banked loans, the Coronavirus Job Retention Scheme, the Self Employed Income Support Scheme, VAT payment holidays, changes to self-assessment payment dates, grants to business in the retail, leisure and hospitality industry, and the business rates holiday for many businesses. Details on the eligibility criteria for the loans remain unclear but further information is expected to be available imminently.
The loan schemes will be administered through the High Street Banks, and we recommend that you contact your bank relationship manager in the first instance as this will likely be the quickest route to support.
3. Payments to HMRC
Her Majesty’s Revenue & Customs (HMRC) are promoting Time to Pay Arrangements for Corporation Tax, PAYE and VAT. We would recommend that, to manage cashflow constraints, you open dialogue with HMRC (by calling 0800 024 1222) and that these arrangements are used. To increase the likelihood of obtaining an arrangement, you should ideally have forecasts available to support your case, or at a minimum, a high-level view of your immediate cash flow pressures.
HMRC have also put in place a VAT deferral scheme which means that no VAT payments which were due in the period from 20 March 2020 to 30 June 2020 have to be made until the end of the 2020/2021 tax year. You still need to file you VAT return. You must cancel the VAT direct debit, if set up, as otherwise HMRC will still collect payment once the VAT return is filed.
In addition to this, if you are in a VAT repayment position you should file your VAT return as soon as possible. If you have made Corporation Tax payments on account, and these will end up being too high, communicate with HMRC and request these are repaid.
4. Review all discretionary spend, including current and future capital projects
Now is the time to consider whether you have discretionary spend. For example, if there are any current or future capital projects which can be paused or cancelled, you should consider this given the uncertainty over what the economy will look like in the short-to-medium-term.
5. Plan for the future
No one knows what the coming weeks and months will bring. However, you should be creating scenarios and planning for the short-term future of your business on a weekly basis. You can do this by preparing simple, high-level, profit and loss and cashflow forecasts assuming best, average and worst-case scenarios. It will be vital to review the outturn against these forecasts and to update them as circumstances change and the economic environment evolves. This will allow you to provide banks, customers and suppliers with the information they need to make the decisions to support you.
6. Consider how you will manage reduced workloads
Keeping your workforce together will give the best results for the medium to long-term success of your business. However, there will be companies that will find themselves in the regrettable situation of not having enough work for all of their staff. There are a number of options available to such companies, including:
- continuing to pay staff as normal
- using the temporary Coronavirus job retention scheme
- requesting that staff take unpaid leave
- paying sick pay (if they are ill or self-isolating, you may get Government support)
- reducing working hours or pay (by agreement), and
- considering redundancies if they are necessary.
The Government are expected to announce measures to support you and your employees with the funding of the regular payroll obligations. We will update you as the measures are announced.
7. Check your insurance
Many companies are now finding that they have insufficient cover, particularly business interruption insurance relating to a pandemic. Before taking any steps towards making a claim, always check your cover and, if necessary, consult with your broker. You may need to consider whether ‘key person insurance’ – which provides insurance to compensate the business for financial losses that would arise from the death or extended incapacity of an important member of the business – will be required. You should also check if the cover you have in this area is sufficient.
8. Know your contractual position
Identify whether you, or your counterparties, may be unable to fulfil contractual obligations if their circumstances are changing. You should also check whether your contracts have ‘force majeure’ clauses that excuse non-performance. While ‘force majeure’ has no recognised meaning in English law, its scope varies from contract-to-contract and will apply in several cases.
Consider new contracts you are entering in to. Perhaps insert a clause being specific on failure to deliver relating to COVID-19.
Would you like to know more?
If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.