Business cash flow under attack

2nd April 2020

The news media tells us that 20% of all small and medium-sized businesses will be unable to survive for a further four weeks unless urgent cash support is received. While the government has devised a series of financial support measures, the mechanics of getting the cash to firms will mean that such assistance is far from instant or contemporaneous.

Action to avoid business failure

If the prognosis is correct, and this current lockdown were to be extended for instance to middle May 2020, then we could see as many as a million small to medium-sized businesses disappearing. While not only disastrous for the wider business community, business failure comes with the attendant hardship for the entrepreneurs, directors, shareholders or partners involved and the invariable uncertainty for the consumer market.

Difficult decisions have to be made. As a responsible manager of a business, it is about business conservation for the benefit of your staff, suppliers and customers.

Protect your cashflow

To try to navigate through this crisis, you need to have a mental checklist in mind at all times. Here is my non-exhaustive “cash preservation checklist” with entries which every manager has an opportunity to influence:

  • Collect debts with renewed vigour – this will become increasingly difficult as all businesses feel the cash pressure.
  • Cut all non-essential services and accounts – no unnecessary cash bleed at all.
  • Payments out only because of necessity – prioritise on the basis of business need only. It sounds harsh, but this is about business survival.
  • Make use of the government financial support schemes for business – do not assume that will assist your immediate cash flow.
  • Furlough staff if possible – it allows you to recover 80% of their furlough wage. But note – you have to pay your staff and reclaim.
  • Redistribute funds for HMRC payments where these have been suspended by HMRC.
  • Negotiate standstill agreements or payment holidays with landlords – they will want to retain a healthy business as tenant.
  • Negotiate standstill agreements or payment holidays with utility providers and banks.
  • If there are historical debts, negotiate longer payment periods or payment holidays.
  • Consider asking staff to take salary reductions – but lead by example.
  • Consider whether a temporary business shutdown is feasible.

Business owners and managers have never been under greater pressure or scrutiny. While the government is moving forward with plans to suspend wrongful trading sanctions during the Covid-19 crisis, your fiduciary and other duties to act in the best interest of the company continue.

Our restructuring and insolvency team are here to help the business community, especially during the Covid-19 crisis – as part of that commitment, you can call me or any member of the team for a non-obligation chat. If we help guide businesses back to safety, then together we will have done what needs to be done.

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