How you can help your business during these times

This is truly an era during which our people, our public services, and our businesses are having to cope with an unexpected crisis which has completely changed the way we interact with each other virtually overnight. 

For a few weeks now, all but keyworkers (hail to them all) have been confined to their home. There is general panic among the population about the risk of becoming infected with COVID-19. Workplaces are now out of bounds and normal working practices are unlikely to resume anytime soon. 

How is a business to survive and how should its leaders manage during COVID-19? 

 

In this article, we’d like to share with readers: 

  • how company owners reacted to furloughing
  • the recent increase in activity by company owners
  • managing available cash during the pandemic and lockdown
  • minimising cash outflows and maximising cash inflows
  • what about HM Government’s Bounce Back Loan Scheme?
  • one thing to consider before lockdown is relaxed and your business reopens 

 

Was this the right furlough model to adopt? 

 

The economy relies on people and businesses spending money with each other. Every time a transaction takes place, the government takes its cut in the form of indirect taxes (VAT), profit (corporation tax), and labour (income tax and National Insurance). At the same time, companies and people earn money on which they live. 

The current furloughing scheme is one under which the government is paying Britain’s employees to sit at home and do nothing all day. 

This approach was undoubtedly right for some types of businesses and it will give them the room they need to keep staff until such time as the economy re-opens again and they can open their doors for business again. 

But is it right for all businesses? The people who run businesses – people like you – understand that, even with the subsidy that furlough provides, revenues still need to be earned. While some businesses had to close down completely, other businesses are still able to trade, albeit with some at drastically low levels of activity. 

The Government has announced its intention to wind down the furlough scheme from June. At the moment, there is no proposal to abolish it – the noises coming from unnamed sources suggest that the current level of protection will remain in place for those businesses which really need it and it will be scaled back gradually for those businesses whose markets are not completely closed off. 

There are competing rumours in the press that the furlough payment will be reduced from 80% of people’s wages to 60% from June onwards – will it be economic for your staff to work for you with a reduction in pay that great? Would your company be expected to top their wage back up to 80% from its own resources. 

Perhaps a model for the government to consider would be Germany’s short-working scheme – the Kurzarbeit. Under this approach reports the Telegraph, “the government makes up the shortfall for reduced working hours, as well as for those who cannot work at all because of the crisis”. 

Kurzarbeit allows employers to choose how much they reduce certain employees’ working hours and will make up most of the difference (even for staff members whose hours are reduced to zero). 

Would this be a better model to switch to if the furlough scheme is changed? We think there’s a strong argument for it because it would allow staff to return to work when the demand and revenue is there and keep safe other jobs within a company allowing staff a sense of self-worth and employers a working employee who can help get things back on track. 

There are other factors to consider too in favour of a gradual return to work. Anxiety among British people is high.  

How much has constant exposure to the message via the media that you risk your own life and the lives of others if you leave the house affected people? We’re certain that cleaning contractors, especially those offering deep cleans, will experience much heightened levels of demand in the coming months because the expectations of staff, customers, visitors, and contractors on cleanliness will be so much greater. 

How much will you budget for a deep clean and for more thorough and regular cleaning of your premises? We certainly think that you should budget for this in your projections. 

Perhaps the greatest fear for businesses about gradually returning to work is the lack of absolute clarity and legal certainty in the guidelines for ensuring a safe workplace. If the guidance is not truly clear and the measures are open to interpretation, how likely is an employer or company to face potential litigation from staff, customers, visitors, and contractors accusing a lack of due care and attention?

 

A plan to protect your business 

 

Within any business, you’re able to measure countless statistics on financial, operational, and employee performance. However, there are only two numbers which really matter – the income you’re banking and what you’re spending. 

In a time of enforced and depressed turnover levels, the focus of any business owner must be to bring in as much cash as possible and to waste as little of it as possible as essential costs must be covered. By doing so, you increase the length of time your business and its cash flow can withstand the downturn and provide a platform to move forward when the world opens properly for business.

 

Minimising outflows

 

Let’s look at each individually beginning with the money which is leaving your account. 

To furlough or not to furlough? 

With many businesses, there are three types of staff – revenue generators, value deliverers, and support staff. If you were to choose which to furlough first, it should be the support staff. If possible, you and your fellow directors should assume as much of their responsibility as possible so that customer expectations are still met. 

Which of your revenue generating staff bring in the most money? Which are the ones who, month after month, sell to new clients and existing clients? They are the face of your company to your customers – more so than you and your other directors. 

The value deliverers – the people who make sure that the product or service is provided to the customers. You will likely need to plan for however many of these staff you need to keep because selling what you sell to customers and failing to deliver the goods is likely to be highly damaging to the esteem your company is held in by existing and potential customers. 

Keep your company machinery working as well as possible during this time of disruption. 

To pay or not to pay your rent/commercial mortgage?

This is a tough one. We’re not solicitors – we’re accountants. You should not take what follows as constituting advice as it is not meant to be. On our books, we have landlords and tenants – it’s better for everyone if normal business continues during and after the lockdown. 

Prior to making any decision to withhold your rent, you must speak with your landlord first to see if they are willing to reach an agreement on rent at this time, many landlords have been fair and reasonable with tenants who are suffering as a result of COVID-19. 

It is almost certain that, in most cases, the withholding of rent, without prior agreement is a direct breach of the lease agreement and that a court would come down on the side of the landlord.  

You may wish to consult with your landlord or commercial mortgage company on this and directly ask them for forbearance. For most commercial mortgages, there are repayment holidays available and it makes good sense to explore these with your lender, if you have not done so already. 

In our experience and judging from what our clients who lease their property have told us, landlords are understanding of the situation and they don’t want to lose your business. The important aspect is to approach the situation as equal partners in a business relationship who both want that relationship to continue. 

To pay or not to pay your creditors? 

As your relationship with your landlord is a partnership, so are your relationships with your suppliers. 

When a client of ours gets into temporary financial difficulty, one of the very first things we advise is that they get in touch with their creditors and suppliers to let them know that they are facing a period of turbulence. 

What we recommend is that, during the phone call, our client is as honest as possible about their situation and that they discuss how long they think it might be before they can recover. In most cases, suppliers and creditors react very positively to such approaches because, most of the time, businesses in trouble cease communication. 

Make sure that the impression that your supplier is left with is that you’re a “can’t pay but want to pay as soon as possible” customer rather than a “won’t pay and there’s nothing you can do about it” customer. 

Go through your bank statement line by line 

Over time, direct debits, standing orders, and subscription payments build up in companies’ accounts often unnoticed. 

Now is the time to interrogate your outgoings as forensically as possible. You may only save a few hundred pounds a month but, unless necessary for the operation of your business, cease all unnecessary recurring expenditure now where you can. Be careful not to breach your contract -  talk to the suppliers who are likely to understand your position so that you avoid potential and unnecessary legal disputes where possible. 

Cancel your VAT direct debit 

If you pay your VAT by direct debit, HMRC have not yet figured out how to stop the payment from being taken where you have a liability which is due prior to 30 June. This liability can be deferred to 31 March 2021 and it is government-approved – you don’t even have to apply for it. Please cancel it now and then come back to the rest of this article. 

Make use of Time to Pay 

Phone up HMRC and tell them that, if you make full payment of corporation tax or PAYE, there is a short-term threat to the viability of your business caused by depressed turnover brought about by the pandemic. They will want an initial payment straight away but then they’ll agree to collect the balance by monthly direct debit over a period of between 3 and 12 months. Your initial payment will be equal to the payments you make monthly. 

Please always make sure that there is money to pay the direct debit because, if you miss a payment, then they will demand that the balance is paid in full straight away.

 

Maximising inflows 

 

By following the above actions, you’ll have reduced your company’s outgoings as much as you possibly can. This means that the available cash in your business will last you longer. You should regularly monitor your outgoings and be aware of exactly what you need to bring in to cover these costs. The next step is to focus on brining in the cash to fuel and feed your business. 

Continue to market your company, market to existing customers, and close deals in your pipeline 

Don’t stop your sales and marketing activities. Decision makers are reading more emails and more blog posts than ever before – they’re even picking up the phone to speak with canvassers. 

Remember that, during this time, getting an expression of interest will be twice as hard than before and closing a deal three times as hard. Just make sure that your revenue generating staff have as many opportunities to do business as possible so that, when things return to normal, they’ve not gone rusty. 

For financial directors reading this article, your revenue-generating staff may not be currently able to achieve pre-COVID-19 prices and that might remain the case for a while. But it’s much better having money coming in on a reduced cost base than having nothing at all coming in so be aware of what discounts to your usual prices can be offered as there is no point bringing in sales that will compound a loss. 

This might be a good time to shift stock that hasn’t budged for a while at a discount just to get some cash in the bank. 

Chase or sell your invoices 

Debtors are using the COVID-19 economic disruption to their advantage and the consequence of this is that many good businesses are likely to collapse into administration or bankruptcy. 

First, it is true that many businesses will run out of money if the current situation continues. This is highly likely when the government starts to withdraw support for the weak or vulnerable businesses as they will and must do. 

Second, some of those businesses may be able to continue to trade with grants and loans although their future viability will be greatly impaired by this period of time. 

You will definitely face more challenges getting money owed out of these companies - this is beyond a doubt. 

Still, you should chase all your overdue invoices. If you don’t want to do it yourself, choose a trusted debt collector or credit control company. If you want even more certainty, sell them to an invoice discounter on a non-recourse basis. 

Sell what you don’t need anymore

Over time, businesses accumulate many assets that they no longer need. Check to see which plant, machinery, IT, telecommunications equipment, vehicles, and so on that you no longer need to inject funds.

 

Should you take advantage of the Bounce Back Loan Scheme?

 

For micro and SME businesses, the Bounce Bank Loan service from the Government was launched on the 4th May offering businesses a funding facility of between £2,000 and £50,000 (no more than 25% of turnover subject to the maximum amount). Over 69,000 were approved on the opening date and these will provide a helpful lifeline to good businesses that are cash starved right now. 

You have six years to pay it back, there are no repayments for the first 12 months, the government pays your interest charges for the first year, and there is little to no credit-checking or other form of investigation prior to the approval of a loan. 

The government guarantees the loan 100% if you default and you don’t need to give any personal form of guarantee. There are no early repayment penalties either should you wish to settle the loan in full early, so a very useful safety net for those who can use it properly. 

If, unfortunately, your company does default on the loan and is unable to pay it back, the bank’s only recourse will be to look to your company to recover any outstanding balance. So, if you default, what is at risk are the assets held by your company with no personal liability attached whatsoever (save for wrongful trading). 

Taking all of this into account, you should only apply for the loan knowing that it will help you through current trading conditions but, in your plans for 12 months’ time, you must factor in monthly repayments of approximately £833.  

For sole traders and unincorporated partnerships the position is different, you will be personally responsible for any outstanding balance. Although your home is not used at security, it may be at risk if the bank brings bankruptcy proceedings against you. 

Call us to ask whether a Bounce Back Loan is suitable for your situation.

 

One last thing…

 

Following on from the furloughing point made earlier in this article, keep your furloughed staff as busy as possible during the lockdown. Please believe us when we say that they’ll appreciate that there is still activity in the business and that you think highly enough of them as staff to stay in touch. If you can, arrange a Zoom coffee morning every week so that everyone can see each other and have a laugh again. 

Many staff will be feeling lonely and bored. Some will wonder why they were furloughed when they wanted to stay busy. Make sure channels of communication stay open between active and furloughed staff – they needed each other before and they need each other now. 

There will be an end to all this and it’s better for everyone if it feels like they’ve never been away when they do eventually come back. 

If you want to speak with one of our accountants about managing your business through COVID-19, please call 020 7631 3080 or email covid19support@jonesandpartners.co.uk.  

Please also feel free to visit our client covid19 resource centre here which is updated daily and if we say so ourselves has a lot of very useful information.