Chris Newell of Quantuma discusses the current situation surrounding financing your business and managing through the crisis (1st April 2020) (comments in italics from Jan Szczepanski)
There are a lot of directors worried about their cash position
Coronavirus Loan Interruption Loan Scheme (CIBLS)
At the moment the banks are swamped and can’t cope with demand. They are looking after their own clients and don’t have time to take on problems from other banks (as they see it). The banks are looking for security but at least are now backtracking on personal guarantees on loans under £250,000.
The feeling is that CIBLS is not fit for purpose as the banks can’t help; bank managers are getting frustrated. Chris isn’t aware of one application that has processed through yet.
Businesses need cash now….
Furloughing
The significant issue here is cash flow. Despite the portal opening end April, this is isn’t expected to pay out until the end of May, so businesses need to bridge over 2 months of wages! On top of this everyone is aware of the lack of flexibility in the rules.
Banks though are now looking to try to help through extending overdrafts.
Dividends: beware!
Perhaps consider salaries instead of dividends if cash is short over the next few months and there is uncertainty. Businesses need to show they are making profits; the risk is of illegal dividends – if the business goes into liquidation, this is a risk of a claim by the liquidator for the dividends to be paid back by the Director/shareholder to the Company.
There is an increased chance now that in the future (next few years) there will be alignment of tax on pay/self employed/dividends by the Government.
Self employed
For the self employed there is help by way of a grant via HMRC (which is not paid until June 2020). There has been some disgruntlement that the grant is based on profits not turnover.
Future Support
- CIBLS reform (changes were in fact made on 2nd April to reduce the personal security burden for loans
under £250,000) - Bank offering more solutions?
- More grants for small businesses?
- What about support for landlords? Tenants are being protected
Unlawful Trading
Personal liabilities for unlawful trading has been removed. Is this right? There have been very few court cases involving wrongful trading.
Other changes to the insolvency process?
- 1) New short form moratorium?
- 2) Appoint a Monitor?
- 3) Protection of supply?
- 4) New structuring process?
All these changes are still some way from being legislated; Chris felt that these shouldn’t be rushed as they may end up failing to help if the Government passes poor law.
General
Major concern now is the lack of liquidity. Chris advises not to panic, don’t make quick decisions, say no to insolvency for now. Defer the decision until we are getting to the other side as if a business is closed now, when you look to re-open immediately, the situation will not have improved. Also more support may be coming from the state. Defer the decision on the future as long as possible.
Mothballing or cocooning makes sense (everyone is talking about this).
Keep calm, take advice from a professional including your accountant.
Action plan for managing the crisis
There are lots of things you can do, act and be pro-active now……
Where your turnover/income is close to zero and you had little cash coming into the crisis, in order to survive:
- 1) Prepare a cash flow forecast detailing where your cash flows out and when
- 2) Cut costs aggressively but liaise with the supplier first – build relationships with them, don’t ignore them!
- 3) Mothball – remember to let your insurance company know
- 4) Furlough employees
- 5) Look at available government grants
- 6) Don’t pay HMRC, landlord or loans/financiers – but talk to them first!
- 7) Use HMRC Time to Pay &/or VAT/tax deferral. In 2008 HMRC gave £8.2bn credit (and got paid back £7.9bn) under Time to Pay
- 8) Look at finance from your bank – overdraft available?
- 9) Approach cash rich businesses {or other financiers/banks, family?}
- 10) Consider whether you are viable long term – but don’t rush into a decision, think, try to defer any decision on this
- 11) Liquidate? Seek advice from a professional including your accountant first
- 11a – Directors could potentially claim redundancy from the state should they liquidate
- 12) Once you feel you can see some daylight, plan your future and work the numbers (forecast cash flow). Can you change your business model in some way long term, to make the business stronger? There will be ups and downs as we return to normality, so manage your cash flow all the time, at least weekly
Where you have some cash reserves now but it is concerning and you need to manage them:
- 1) Prepare a cash flow forecast – know what is available to come in and when it impacts the cash position, check this week by week, be sure you know where you are
- 2) Be sure you will be paid by your supplier before you incur further costs but then not get paid……
- 3) Consider mothballing – remember to let your insurance company know
- 4) Consider CIBLS/loan scheme. Research how long this will take though
- 5) Look at the various alternative financing options from your bank – overdrafts, asset finance, loans
- 6) Look at other financiers/banks, family?
- 7) Cut non-essential costs – discuss with the supplier first
- 8) Use extended payment facilities from HMRC!
- 9) Defer rent and paying loans/finance – but talk to them first!
- 10) Can you change your business model, sell in different ways right now?
Other points
Buy to let landlords should be asking for payment holidays on loans, where cash is an issue.
Don’t forget Universal Credit and housing benefit.
Funding Circle also offer 3 months holiday; similar businesses too.