Take control of your business future

Lockdown 3 is upon us and has brought with it a new shock to the UK and its business community. Nonetheless, there are glimmers of hope in terms of:

• the vaccine programme; and
• the reports we see of some consumers increasing savings during the restrictions to hopefully spend when the virus is under control and restore our economy. Could this be the next-generation Roaring 20s, perhaps?

The greatest difficulty is understanding how long the lockdown may last. The PM thinks mid-February, others are predicting the end of March. Regardless, it’s going to be quite some time before we see any return to a semblance of normality.

On a personal level, we have all had to adapt to the lockdowns in different ways and many have become rather battle weary with it all. The same applies to many businesses and, with it, brings the potentially risky thinking that we should respond to this lockdown in the same way as the lockdowns which occurred in 2020.

In the 1960s, Professor Martin Seligman, a well-known psychologist, demonstrated that, we experience learned helplessness when we face uncontrollable and inescapable stress. We stop trying to respond to dangers and passively accept whatever harm befalls us. Such behaviour, whilst understandable, can create additional problems, especially in the business context where burying one’s head in the sand can often be a straight runway to insolvency.

This lockdown is different for many businesses and so care should be taken to approach it differently.

What do we mean by this?

The vaccine gives us cause for optimism for the future revival of income but cash is still needed for business survival.  This cash is not just needed for the lockdown period but also for when business activity eventually revives. Ensuring reserves are in place to see you through the return to normality is paramount.

Some businesses which took advantage of the government backed lending schemes in 2020 have been able to preserve some of that cash and may be able to use this to ride out the new lockdown.

The state of other businesses will be different where they have had to spend the funds borrowed on maintaining overheads. Ironically, these are likely to be businesses in retail, hospitality and leisure which will likely be hardest hit again by the current restrictions.

The top up grants announced by the Chancellor last week may provide some help but do not provide a full solution. It is worth businesses considering the government backed lending schemes again, as the schemes’ deadlines for approval have been extended until 31 March 2021. Our experience is that businesses have often focused on the overdraft and standard lending products available and to the exclusion of asset-backed funding, which can also be provided under the government backed Coronavirus Business Interruption Loans Scheme. Whilst not possible for all businesses, this option is certainly one to consider for those with an asset register that can take advantage.

For example, businesses can obtain invoice discounting lending under these government backed schemes, provided their future debtor book is still looking sufficiently healthy, even if it is currently suffering. Our funding team can advise further on whether this is a possible solution for your business.

Is it all worth it?

I’ve had conversations with clients questioning whether it is really worth carrying on with business ventures which are suffering acutely under the COVID-19 restrictions. In some cases, clients are considering whether they could spend their time more fruitfully pivoting into new areas and in other cases, clients are recognising the difficult times ahead and concluding that, if they are in a position to take early retirement, this may save stress and risk in the future.

Entrepreneurs always have the option to move on to other ventures provided, of course, that they fulfil their obligations to shareholders, employees and other stakeholders.

The exit from a business does need planning, and there is no one size fits all. Our advisory teams are well versed in shaping such decision-making and can help walk you through the relevant considerations.

Difficult decisions

Regrettably, there are businesses which, through no fault of their own, will be unable to see the light at the end of the tunnel, given the new restrictions. Our advice in these situations is to discuss the issues with a restructuring professional at the earliest possible stage.

The options for a business which is addressing existential issues early are far wider than a business which has exhausted the patience of lenders, suppliers and employees. Reviewing the options before a crisis allows time to consider how best value can be preserved for everyone, which could include the sale of the business. It is important to remember though that, in the “twilight zone”, directors must start to pay due attention to, if not prioritise, the interests of creditors. Whilst there may be a current pause on personal liability for wrongful trading, there are other actions which can be taken against director misconduct and care does need to be taken where the final outcome for a business is not clear.

Most options take some time to implement, so talking early to a professional will help provide the longest runway possible to explore things and would be the action of a responsible business owner.

If you have any queries in relation to these topics, please do get in touch with your usual Kreston Reeves adviser or contact me here.