Cash preservation is the key to ensure you have enough to last and will be how your business can survive.
As I said previously, the big questions are:
- When will that support arrive,
- Will it be enough,
- When will things get back to normal
- How much work will be needed just to get back to where you were before this happened
- And is it worth it?
You MUST prepare cashflows and profit forecasts to work out when the crunch points will be (so you can start thinking what you will do at that time) and to estimate what your business will look like after this crisis is over.
Consider what future demands will there be on cash, when everyone in the supply chain is struggling? If you do need to get support from lenders or the interruption loans, make sure you have enough of a window to survive the long term, not just the next three months.
The following are 10 ways you can preserve your cash to help you fight another day:
- You may be paying furloughed wages now, but you will probably not get money back from government until mid-May at the earliest.
- If you are getting interruption loans, when will the money be received, when will they need to be paid back and what interest rates will apply over the whole period. Keep pushing for an interruption loan, to avoid possible ordinary loans and personal liability on guarantees. If one bank will not offer it, don’t be afraid to try a different one.
- Consider who you absolutely MUST pay – this may seem harsh, but there will be very few essential items (like staff who have not been furloughed) that fall into this category.
- Speak to your suppliers / creditors / employees about how they can help you with deferred payments (even over a number of months in the future).
- Speak to your landlord. Can they give you payment holidays and is the rent actually going to be written off or just continuing to accrue – when will you actually HAVE TO pay what is deferred.
- Can the business afford to pay you the amount you are used to. Be careful not to take money as dividends when you have no “distributable” reserves – this is illegal.
- Try and collect in your debtors, but remember they are also going through the same issues as you.
- Make sure you will have enough money to service any bank loans you take out now. If getting interruption loans check the interest rates and repayment terms after year 1. Can you afford this? Will business be back to normal by that time?
- Make sure you can afford to pay HMRC when negotiating time to pay arrangements on PAYE or paying any VAT due (deferred to April 2021)
- Make sure you have enough to pay your income tax (deferred to January 2021)
What to do now
Work with your accountant and/or business advisors. We are here to help too, supporting your accountant and advisors with our specialist knowledge. For example, if necessary there are statutory mechanisms to delay payments to creditors, if they are not prepared to agree to this informally.
Stay safe and keep the fight going.