COVID-19 – emergency cashflow management

Last updated 7 January 2021

The Coronavirus (COVID-19) pandemic has created extreme economic pressures on many businesses and cashflow management must be a priority over the coming months. Effective cashflow management will enable businesses to weather this unprecedented disruption as best they can and hopefully be in a stronger position to recover and grow once this difficult period is over.

Below are some of the critical actions businesses should be looking at now in order to manage and retain their cash effectively.

1. Cut non-essential expenditure

Review your current business plans and cut any non-essential expenditure immediately.  It may be that these items can still happen, they are simply deferred, however until you have undertaken the scenario planning (see next point) and have a clearer understanding of how long this period could last, then current spending should be limited to just essential items.  Preserve your cash, be brutal.

2. Scenario planning

Prepare short term cash flow forecasts based on the different scenarios that your business may face in the coming 1, 3 and 6 months. The details of these scenarios will be dependent on your sector and business model – the scenarios a hospitality business will have to run during this period will have different factors and assumptions attached to them than that of a professional services company.

The majority of your customers will also be having cash flow burdens, so take this into account for all your scenario planning. The likelihood is that none of the scenarios you plan for will come to fruition in totality, however the process of preparing these forecasts will focus your attention to critical areas and also then allow your thinking to be more agile to make the quick decisions as the economic environment changes daily.

Again – be brutal in scenario planning and assume the worst, if only to ensure that the critical impacts on your business are recognised and strategies developed to cope with them.

3. Speak to your suppliers and creditors

Now more than ever having open and honest conversations with your suppliers and creditors is vitally important. Some will undoubtedly be having similar issues to you so may not be in a position to extend payment terms. However, being transparent and open with them now, when you are “all in this together”, will hopefully build stronger bonds and continued relationships once this period is over.

Reducing credit terms for customers has been suggested as a measure to accelerate cashflow.  Whilst this would help cashflow, clearly it could be controversial for customers.

4. Speak to your lenders

The Government is urging banks to be supportive during this difficult period. If you have bank financing then speak with your lender to see what repayment holidays or other support they can provide.

Ensure that you are clear about the message you wish to give to a lender. At the present time, cash conservation is a key strategy for many businesses so that they can survive the current economic climate. Lenders will wish to see businesses survive and should be empathetic to customers who are taking sensible strategies. However, they will wish to see the measures being suggested as appropriate and reviewed on a regular basis.

Lenders will be overstretched and support from accountants who have reviewed or prepared cashflow projections may well assist with a positive decision.

5. Make use of HMRCs Time to Pay facility

Any business with outstanding tax liabilities (e.g. PAYE, VAT, Corporation Tax) may be eligible to receive support in deferring any payments due to HMRC for a limited period. Each request is reviewed on a case by case basis and the tax payer needs to contact the HMRC COVID-19 Helpline on 0800 024 1222. More information here.

For more practical steps to improve your tax cashflow position click here.

6. Apply for any Government support you may be eligible for

SMEs could qualify for the Coronavirus Business Interruption Loan Scheme, more information here.

Larger businesses could qualify for the Covid-19 Corporate Financing Facility, more information here.

7. Be creative

The landscape is changing daily for all businesses and for many their entire market and customer base has vanished virtually overnight. However, some have been able to think creatively in order to maintain part, if not all, of their businesses and also retain some of their teams. For example, in the hospitality sector some restaurants have had to flip to delivery only models following social distancing, taking away their customer base overnight. Others with a loyal clientele have been able to sell gift vouchers for future meals once this period is over which provide immediate cash to hopefully get the business through the short-term cash turmoil.

How can we help?

Our team is well resourced and experienced in advising companies and not-for profit organisations, allowing you to focus on managing your business during this trying period. We are set up to work from home so you can expect the same level of service, albeit remotely rather than in-person. We have:

• A team of debt advisory and corporate finance experts used to working with banks and other lenders, and can support you with CBILS and CCFF scheme applications. We understand how lenders are currently making credit decisions, and with the majority of the government lending schemes due to close at the end of March we can help with your application.
• Our restructuring and insolvency experts can advise businesses under stress about the options available to them.
• Our tax experts will also be on hand to advise you on applications to HMRC for the Time to Pay initiative, for corporate tax advice and R&D tax claims. We also have VAT & Duty experts who can support you in revising your VAT position.

Do call us on 0330 124 1399, via our enquiry form or speak to your usual Kreston Reeves contact.