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As the coronavirus crisis deepens, it’s inevitable that there will be an impact in the business world. Knowing how to spot and resolve cashflow issues has never been more vital. With several sectors now unable to trade, and others only providing essential services, many owner-managed businesses will be reviewing their financial situation and cashflow.

However, although this is an unprecedented global emergency, there’s also great value in taking a step back, reducing the level of panic decision-making and taking a more measured and objective view of your cashflow. With the right approach to cash management and access to funding, there will be ways to keep your business afloat.

Daniel Rose gives his expert tips on how to spot, and resolve, any forthcoming cashflow issues in your business.


Taking a moment to assess your situation

With everything that’s going on in the world in 2020, everyone running a business has assumed that they’ve got a cashflow issue on the horizon – even if that’s not yet the case.

It’s no bad thing that owners are taking the time to check on their cashflow position. That’s always good practice, whatever the external economic situation. But it’s important to be realistic about your financial situation and to not jump to any worst-case scenarios just yet.

The reality is still fairly stark, however:

  • There are likely to be more unpaid customer invoices over the coming months
  • Aged debtor days in the business will rise alongside this
  • Paying your suppliers on time is going to get more difficult
  • Your products may not sell, as consumers will be self-isolating
  • You may not be able to sell your services during the current UK lockdown.

The fact is that there WILL be an impact – the key is to understand that each business will be affected differently, depending on your industry, specialism or size.

An example of this would be construction business, where many sites are now shutting down. Invoice factoring is a popular financing tool in construction, allowing businesses to sell off their unpaid customer invoices to access cash more quickly. But once these invoices are over a certain age, they become disapproved debt, meaning the factoring company no longer will provide you lending on these invoices.

So if you don’t get paid for two months and invoices become disapproved, that is money you may have drawn down on and spent within your business, which suddenly will now will need to be repaid back to the factoring company.


Knowing when there’s a true cashflow issue

A fifth of UK business will run out of cash during the current coronavirus emergency, even with Government support to provide additional funding, according to recent research by a consortium of accountants.

Keeping on top of your finances during this crisis is going to be crucial. Pre-emptive action is always more effective than trying to sort out an unexpected cashflow mess – so take the time to sit down and work through the different areas that could burst your cashflow bubble.

These will include:

  • Assessing which products/services are not selling – if you don’t make any sales, you won’t have any sales revenue. So think realistically about where your cash inflows may come from. In certain sectors that rely heavily on retail and hospitality, business owners will already know that they won’t have a single sales invoice for the next three months. I personally have many clients in this sector and we are already making plans on how to resolve this situation.
  • Reviewing your supply chain – if you rely on other external suppliers for parts, raw materials or products, check in with these suppliers and make sure that the supply chain won’t be interrupted. Without your products/materials, you won’t be able to trade, bring in sales or generate your usual revenues.
  • Checking when customers will pay – knowing WHEN your invoices will be paid is vital piece of information. So talk to your customers, check on their financial situation and get some proper dates locked down for when their outstanding bills will be paid. This will help to minimise any aged-debt problems.
  • Identifying any big outgoing bills that are coming up – large cash outflows can have a serious impact on your cashflow position. So, look at your future pipeline and highlight any big supplier invoices you’re due to pay, or large corporation tax bills that will soon be due. The better your information is regarding these upcoming bills, the better you can take action to minimise the impact.

By digging down into these considerations, you can quickly get a clearer idea of your short-term and future cashflow position – giving you the heads-up if action is required.


Focusing on essential activities

In the current situation, advice is that essential businesses should continue to operate. But there’s real confusion in many business circles around what ‘essential’ truly means.

The Government’s definition of key workers goes some way to giving clarity on what’s seen as essential. However, there are a myriad of smaller businesses in the supply chain who are needed if key essential businesses and organisations are going to be able to do their job.

For example, a label-making company may not sound essential during an emergency. But if that label-making business supplies labels for urgent medication and coronavirus treatments, then their role in the supply chain becomes a critical one.

Identifying whether you should (or shouldn’t) be operating is an important step. If you CAN be part of essential work – playing your part in overcoming this crisis – then you’ll also be trading, generating income and lowering any potential cashflow risks.


Staffing needs and the Coronavirus Job Retention Scheme

The amount to which your business can continue to trade will also affect your staffing and resourcing – whether your staff are able to work from home, or need to be furloughed.

The Government’s Coronavirus Job Retention Scheme (JRS) offers a way for owners to ‘furlough’ staff; essentially keeping them on the payroll but sending them home until normal operations can be resumed. The aim is to stop wide-spread redundancies as company’s struggle to cover payroll costs, with the Government covering 80% of an employee’s salary, up to a limit of £2,500 per month.

A limitation of the JRS scheme, as it stands, is that owners and directors are (largely) not eligible, which could cause personal financial issues for many directors and NEDs.

The core aim behind all government support is to try and keep UK businesses operating. So it’s important to think about who you DO and who you DON’T furlough, so you have enough people on board to hit the ground running once this crisis is over.


Accessing funding and the Coronavirus Business Interruption Loan

Having enough working capital in the business will be vital for many businesses. So, if you do spot a cashflow problem there are ways to top of your funding.

The Coronavirus Business Interruption Loan (CBIL) is the Government’s route to funding for UK companies that are experiencing a severe drop in cashflow due to COVID-19. Finance will be available through high-street banks, challenger banks, asset-based lenders and some smaller specialist local lenders.

Businesses can access up to £5M, but it’s important to realise that this doesn’t have to be in the form of a business loan. There’s more flexibility built in to help tailor funding to the cash needs of the business.

You can access:

  • term loans
  • overdrafts
  • invoice finance
  • asset finance

In my experience so far, the banks are looking for a LOT of information before they’ll release any funds. So, it will be important to work with your accountant and advisers and produce the requisite accounts, forecasts and projections that any lender will require.

The CBIL scheme isn’t your only option of course. There’s also the Small Business Grants Fund (SBGF) and Retail, Hospitality and Leisure Grant Fund (RHLGF) where eligible businesses can claim between £10k to £25k in the form of a government grant.

The Government has also updated the original loan scheme, to make it easier for smaller businesses to access loans, with the government assurances on these loans now tightened up.

You can also consider working with your existing bank, talking to alternative lenders or looking for investment from your current shareholders as ways to inject additional cash into the company and overcome those cashflow gaps.


Helping you resolve your cashflow issues

Taking out additional loans is, of course, not great for the long-term financial health of your business – any loans get added to the liabilities on your balance sheet. But in these highly challenging times, access to additional funding is likely to be necessary for many companies.

To get through these tough times, UK businesses are going to need to pull together, supporting each other, agreeing on more sympathetic payment terms and building closer and stronger relationships with the companies in their immediate supply chain.

Come and talk to us and we will help you:

  • Understand your current financial and strategic situation
  • Pin down your cashflow pipeline for the next three months
  • Use bespoke forecasting to identify any future cashflow gaps
  • Agree on the level of additional funding the business will require
  • Connect with banks, lenders and loan providers to top up your working capital

Getting through this crisis won’t be a walk in the park, but with the best possible advice and access to funding, your business can survive the challenge.


Talk to one of our Essex-based advisers about how to spot and resolve cashflow issues.

Are you unclear on any COVID-19 related issues that your business is facing? Get in touch and we will be happy to assist you

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