11 Jun 2021
As the economy continues to reopen, many business owners are looking at the future of their business. Whist Government support has undoubtedly assisted many during the pandemic, figures from the Business Insight and Conditions Survey show 38 per cent of trading businesses warn they have less than six months’ cash reserves left – while a further 4 per cent have none.
The survey, run by the Office for National Statistics (ONS), polled 9,547 businesses across the UK between 3rd May 2021 and 16th May 2021, with 1,282 of the respondents based in Scotland.
Generally speaking, you would expect businesses to have cash reserves equating to around three months’ outgoings whilst the sweet spot is six months or more, allowing businesses to deal with any unexpected issues that may occur.
With this in mind, there are a number of pressure points business owners should pay particular attention to over the coming weeks and months. Prioritising the following areas may help reduce strain on future cashflow:
Lenders are starting to contact borrowers who took out Bounce Back Loans in the Spring of 2020. In addition, the 12 months interest-free/payment holiday for CBILS loans will also end for many in the next few months and businesses should ensure that they understand what the repayments look like.
Payment of VAT deferred for amounts due between 20 March and 30 June 2020 should have already been paid by 31 March this year, unless you join the new VAT deferral payment scheme, which is open until 21 June 2021.
The temporary measures introduced by the Government to protect tenants from overly aggressive landlords come to an end on 30 June 2021.
Many businesses have chosen to defer some liabilities and creditors are unable to issue statutory demands and winding up petitions to recover those debts until 30 June 2021 at least. Repayment of these costs cannot be pushed down the track indefinitely. Taking action sooner rather than later will ensure that these challenges can be dealt with.
What does this mean for businesses?
Inevitably as the Government phases out its support, businesses will feel a strain on their cash flow. Businesses will need to assess the liabilities that have mounted up in the time they have been closed and the liabilities that will be falling due.
Understanding a business’s cash position in the short to medium-term is vital in helping business owners to assess what steps they need to take to keep their business moving. Devising forecasts with different scenarios will help identify problem areas.
Whilst this is relatively straightforward, seeking assistance in either preparing or reviewing the forecasts can really help your reopening plan. Once you have ascertained what your future position is likely to look like, it will help your decision-making process as to what steps and/or external support is needed to assist you.
What if there is a question over the viability of the business?
The main point here is to seek advice early in order to have as many options as possible to resolve viability problems. Cash flow problems can very quickly lead to pressures on the business if wages and/or suppliers cannot be paid. If this scenario resonates with you, seeking advice early should be high on your to-do list.
Armstrong Watson’s Restructuring and Insolvency team is well-placed to advise you (or your clients) and will be able to explain different options available. Please contact Mike Kienlen on 07770536214 or email firstname.lastname@example.org for more information.