Cash is King
I’ve said that making a plan is important, it is, in fact it’s vital. And as time has ticked by at a meteoric rate these last few days, we are slowly beginning to understand how some (not all) things will pan out. And the reason we must make a plan is, frankly, we don’t want anymore surprises. If at the end of your planning exercise it looks as if you might be £40k overdrawn by the end of May, then at least you know that today and it won’t come as a surprise one morning in May when you log into you bank account.
We are focusing on 90 days, you will, at some point need to extend this to 365 days.
Let’s look at income
For those of you still able to work, just ensure all the work you do just now, you get paid for (not held on credit) unless there is an extraordinarily good reason why you are doing it for goodwill. Goodwill is important, and I believe people will remember your acts of kindness now long into the future. And if they don’t, well maybe they are not the type of people you want to do business with. So forecast your income over the next 90 days.
The people who owe you money just now will fall into one of three categories;
- 1, pay promptly
- 2 , willing to pay, just not now
- 3 , won’t (ever) pay
You need to enter into a regular dialogue with your debtors to understand which category each debtor sits in. And when they are in the second category, start a conversation as regards how they intend to ‘catch up’ on the outstanding payments.
If you are in retail, hospitality or leisure and your rateable value is between £51k and £18k – you will receive a £25k grant from the local authority. Expect this in April.
If you pay no rates or small business rates (under £18k), then you will receive £10k from the local authority. Expect this in April.
We’ve talked a lot about furloughed employees and grants, and briefly it goes like this.
> Furloughed employees – this term has been around for years and it is quite possible for any employer to place an employee on a furloughed status. It happens a lot in the leisure industry where resorts shut down for a season and rather than loose key employees they are furloughed.
> How much you wish to pay them is entirely up to you, but there’s many a good reason to set the rate at the lower of 80% of all their employment costs or £2,500.
> You would choose this status rather than redundancy, because you want them there when business picks up again in a few months time (hopefully)
> Grants – once you’ve furloughed someone and complied with the rules laid out by HMRC (…..not known at this stage) you will be eligible to claim a grant to cover their cost of employment through the Government Job Retention Scheme, which, if you read the above carefully, magically matches the terms you set out above being the lower of 80% of all their employment costs or £2,500.
> this should leave your cash flow cost neutral.
> there maybe a small timing difference between payment to the individual and receiving the Grant from HMRC. It’s not clear whether that will be a positive or negative cash flow.
Any VAT that would normally be payable in the quarter ended June 2020, will be postponed until 31 March 2021. You will need to give this some thought as it will be a big ask, but there may be further concessions down the track
It’s not a given but HMRC are relaxing their time to pay criteria, but you will need to call them. Once again, we are emphasising that this is a postponement, not a write off, and therefore you will need to factor in full settlement at some point.
We haven’t specifically seen this but I suspect there will be some leniency over the next few months
Mortgages and other finance commitments
With one exception (in the peer to peer lending circle) we are seeing repayment holidays of between 3 and 6 months. Contact your lender now, and don’t take the first offer. Renegotiate if necessary. Largely speaking, any holiday given now will be spread over the remaining term of the agreement – so monthly payments will rise if you take a holiday.
Some sectors (Retail, Leisure and Tourism) have got a 12 month exemption. It’s worth contacting your local authority with a view to postponement (recognising that you pay catch up payments later in the year)
There may be other costs too, but you can decide what you need to cull, reduce or postpone on a line by line basis.
Need to borrow?
The above will give you an indication of the financial needs to keep the business going for the next 90 days. And if you need to borrow there are 3 sources
> Your High Street bank. This would be an application for finance in the normal way together with full supporting business plan. The Bank has two choices;
> yes – then the application will proceed on a a normal basis
> no – then they may introduce you to the Coronavirus Business Interruption Loan Scheme, backed (well, 80% backed) by the government. This is intended to turn ’no’ in option 2 to a ‘yes’. Note, however, that the lender here (still the High Street Bank in this example has the right to choose whether or not to seek additional security. That will be secured on the company (a debenture) or a director’s personal guarantee (let’s talk about that if required – don’t just go and sign)
The Government backed scheme (see above)
Other Cashflow lenders – we are getting a good response from a finance company sourcing ‘cashflow loans’ on the following terms
> 5 year repayment
> from 1.9% interest
My advice is to pursue all channels and get offers where you can – it’s your call which, if any, you take up.
Once again – please get in touch to talk this through and clarify any uncertainty you may have.
- Landline – 01326 660022
- Mobile/What’s App/Text – 07779799995 – Mike Hutchinson
- Zoom – ID 205-677-7765 – Mike Hutchinson