Cash flow issues are a familiar problem for the UK’s small businesses. When there’s more money going out of the business than there is coming in, it’s only a matter of time until the business starts to suffer. There are all sorts of common causes of cash flow problems, ranging from the loss of a key customer to late payments and large, unforeseen expenses. However, in 2020, by far and away the most common cause of cash flow concerns has been the Covid-19 pandemic.
With businesses across a broad range of industries being forced to close and others having their revenues decimated by the outbreak, companies are dealing with cash flow pressures like never before. While some larger businesses have cash reserves to fall back on, many smaller businesses are being pushed to the brink of collapse.
If you’re experiencing cash flow problems in your business as a result of Covid-19, here are a few potential solutions to help you get the situation under control.
Explore the government support schemes
Your first port of call should be the support schemes that have been put in place by the government to help businesses like yours. The 2nd wave of the virus has seen extensions to existing schemes and the introduction of new packages that can offer vital support. You can explore all of the available assistance here.
One recent addition to the government support available is the Bounce Back Loan Scheme. This is targeted specifically at small businesses that are experiencing cash flow problems as a result of Covid-19. You can borrow 25% of annual turnover, capped at £50,000, with no interest payable on the first year. The loan is quick, readily available and you can apply up to 31 January 2021.
One of the major benefits of the scheme for businesses struggling with cash flow is that the loan is 100% guaranteed by the government. That provides the reassurance that, if the business fails, you can close a company with a Bounce Back Loan without having to worry about the personal liability issues you’d experience if you had signed a personal guarantee.
Update your cash flow forecast regularly
Your financial statements might make pretty grim reading at the moment, so much so that it will be tempting to ignore them completely. However, now it’s more important than ever that you have an up to date and accurate picture of your financial position.
You should update your cash flow forecast regularly and produce a best-case and worst-case scenario that accounts for lower sales as the situation develops and the impact of late payments or bad debts on your cash position. You need to know how much cash your business can draw on, what expenses you have coming up and the costs you can try to reduce. You can then consider what external assistance, such as additional funding, you’re likely to need before the situation becomes critical.
Negotiate with your creditors
During the outbreak, everything is negotiable. If you have payments you cannot make, contact your creditors to explain your position. Having to wait longer for payment is better for your creditors than if your business ceased trading, so it’s well worth getting in touch to see how flexible they’re willing to be.
Creditors know just how difficult the situation is and if you have a good payment history, then suppliers, landlords, commercial lenders and even HMRC may be willing to consider new terms.
Creditors will usually be more receptive to negotiating new repayment terms if you contact them before a payment has been missed. This is particularly the case for HMRC, where making contact before you’ve missed a deadline will also help you avoid late payment penalties that will do further harm to your cash flow position.
Pay close attention to your commercial receivables
Just as your payments to creditors are likely to be affected by a shortage of cash flow, so could the payments made by your commercial customers to you. To reduce the risks, you should analyse your debtor book and consider the sectors your customers operate in and list those that are likely to be most affected by the pandemic and those where the impact will be less.
Your customers should be actively contacted to collect payments when necessary and to better understand their position. For customers in the most affected sectors, you may have to negotiate a payment plan to keep a continuous flow of money into the business, albeit at a slower rate. For other customers, charging interest on late payments or offering incentives for early payment will increase the likelihood that payments will be made on time.
Tips to help you now and once the outbreak is over
The development of Covid-19 vaccines means that an end to this period of unprecedented uncertainty could be in sight. We hope these tips will help you mitigate the impact of the coronavirus now and manage your small business’s cash flow more effectively in the future.