There’s no way to sugarcoat the impact of the coronavirus pandemic for the UK’s businesses. This is serious – and, as such, you need to choose the right strategies to safeguard the future of your business.
As revenues continue to dissipate over the coming months, and cash becomes scarce, the challenge of paying staff and suppliers is likely to hit hard. Owners are obviously worried and we’ve been inundated with questions from clients. But there’s still a lot of confusion, and a lack of detail in much of the government guidance.
Christopher Blunn highlights six ways to provide a good footing in safeguarding the future of your business, your profits, and your people.
1. Cashflow management in the short and medium term
Cashflow is likely to be the most important thing for small businesses to focus on. As we highlighted in a recent blog post, cashflow really is the financial heart of any company, so keeping in control of a diminishing cash pipeline is going to be vital.
Many owners will be paying serious consideration to letting staff go and making sweeping cuts. The key thing is to step back, look at the high-level numbers and get the foresight you need.
Owners have a tendency to panic in emergency situations, but my motto is always ‘don’t be too hasty’ when it comes to cashflow decisions. Look at your cashflow statement, map out your cash position with forecasts and see where you are.
Take a breath, talk to your accountant and crunch the numbers. Then, armed with those numbers, you can ask some important and probing questions:
- What paying work and projects do you have in the order book at the moment?
- How long will these projects last for and when does the work dry up?
- Is your sector/industry highly affected by the lockdown – and will it get worse?
- Are high-value projects likely to be cancelled – and what are they worth?
- What does this all mean re staffing, internal resourcing and payroll costs?
Cashflow feeds into everything you do as a business – and those cashflow numbers inform your decisions and justify them. For example, a lack of cashflow may mean you need to ‘furlough’ some of your staff, to reduce costs and preserve their jobs.
2. Forecasting, scenario planning and the fee pipeline
Leading on from cashflow is financial forecasting. Being able to project your key numbers forward in time will be invaluable over the coming months.
Running a high-level revenue forecast gives you a detailed overview of what money is coming in – so you can see the future path of your income during the emergency. By combining forecasting around your revenue, cashflow and liabilities (debts) you can quickly flesh out your overall financial position as it stands in a month, six months or a year down the line.
These forecasts need to be high level and fast to produce – so you can take action fast.
Calculating these high-level forecasts provides you with the bigger picture, giving real foresight into the headline figures, major projects and costs.
You can then start thinking about different scenarios, strategies and considerations, for example:
- Are you pricing work correctly during the emergency – and will your price points need to change during the crisis?
- What projects are you going to take on – are they the right pieces of work and will you definitely get paid for them?
- What’s your fee pipeline looking like – and is there enough revenue coming in to keep the business ticking over during the current slowdown?
- Which jobs or customers are looking most risky – and are you reviewing your customer base to see which clients should be prioritised?
- Do you need to update your debt management process – and should you tighten up your credit control procedures and payment terms?
- How lean should you make your operations – and will you be able to kickstart the business and pick up opportunities once the crisis is over?
3. Working capital management and funding
For the business to continue trading during this crisis, it’s imperative that you have enough working capital in the company. Keeping on top of working capital management is critical.
Here are some key areas to focus on:
- Raise invoices quickly – all billing should be done as quickly as possible. You can’t get paid until you invoice your customer, so get bills raised and sent ASAP.
- Tighten up contracts – there’s the possibility that customers may try to wriggle out of pre-agreed contracts and agreements, so make sure your terms are watertight and that you can guarantee payment and recovery of any losses.
- Check your insurance policies – check the terms of your business interruption insurance to check whether you’re covered and will qualify for payouts.
- Explore any tax breaks – you can lessen your tax liabilities by making use of the announced deferred VAT period, or by accelerating any R&D tax credit claims.
- Keep cash in the business – as the owner, it’s sensible to look at your own lifestyle and how much cash you’re extracting from the business. Reducing your living wage, dividends and cash extractions will help to keep your capital levels higher.
4. Making some very hard decisions
Over the coming months, there’s the possibility that some difficult decisions may need to be made around staffing, resourcing, growth plans and the future of your business.
No owner likes to be faced with these kinds of decisions. But if hard decisions need to be made, it’s better to know NOW and to take them swiftly – or to have strong evidence that these measures can be avoided for the moment. It’s always better to make an informed decision early, rather than causing further problems down the line.
For example, some businesses may be forced to cut staffing back. But, equally, by working closely with your advisers to flesh out the big picture, you may be able to apply for a government grant – allowing you to furlough those staff instead and retain their roles.
The key here is to have the evidence to back up your decision-making, and to rip the plaster off quickly if difficult measures are needed to overcome this crisis.
5. Dealing with the emotional and HR needs of staff
Your responsibilities and worries as a business owner won’t just be of the financial kind. You’ll also be supporting your staff through this difficult period.
For many employees, this crisis is forcing a huge amount of change onto them in a very short space of time. Many will be dealing with the move to remote working, the threat of losing their job or the possibility of experiencing a large cut in pay. So, make sure you’re talking to your people and keeping them in the loop regarding any big decisions.
For example, if you write to staff announcing an unnegotiated pay cut, you breach the material terms of their contract, leave yourself open to constructive dismissal claims and do irreparable damage to your relationship with employees.
So, think through the impact of any changes, be transparent about any plans and do your best to treat your staff with the respect they deserve.
6. Doing the right thing and leading by example
The next few months are likely to be a rough ride. But with the right foresight, planning and positivity, businesses will be able to ride out the worst of the coronavirus crisis.
Do the right thing by your staff and suppliers and they’ll support you. And by showing strong leadership, a clear strategy and a willingness to be flexible, there’s no reason why your small business can’t pivot and evolve to live another day.
Once we do return to ‘business as usual’, your company and your people will be stronger for the experience. We’ll have all the benefits of remote working, video meetings, flexible working and online team communications to call on. And, hopefully, your finances and underlying business strategy will be leaner and more able to flex to meet new challenges.
We’re here to help you through this crisis, one step at a time.
Talk to us for help and advice and let’s start strengthening your business.