Be open about the challenges ahead - Chad Griffin

The latest Federation of Small Businesses (FSB) quarterly Small Business Index paints a pretty bleak picture of a business community under extreme pressure.

Chad Griffin, partner in the restructuring advisory team at specialist business advisory firm FRP

Indeed, almost five per cent of the businesses surveyed said they would not survive the next 12 months – a record number, which could mean more than 250,000 small firms in the UK fail within a year.

We know that Scotland’s business leaders have worked hard to stabilise their operations in the face of significant operational challenges brought about by Covid-19, which has affected almost every business in some way.

Ongoing national and local lockdowns have forced some, particularly those in the hospitality sector, to mothball their premises or pivot to providing takeaways, for example. Others, in sectors including manufacturing, have had to contend with significant supply chain disruptions and depressed consumer demand.

As we start a new year – and a new lockdown – many business leaders in Scotland will be considering how they can navigate their way through months to come, and there are three key factors that should be at the front of their minds:

Firstly, it’s essential for management teams to devote time to refreshing, or developing, a detailed 13-week cashflow forecasting model.

Of course, the situation is still very fluid, which makes this process difficult, but having a clear understanding of a firm’s cashflow position will help identify where potential pressure points lie.

Next, leaders must plan for the end of the government support measures which have been so widely adopted, from furloughing staff through the Coronavirus Job Retention Scheme (CJRS) to business rates relief and the Coronavirus Business Interruption Loan Scheme (CBILS).

They have helped many businesses to stay afloat but, at the time of writing, the CJRS is set to close at the end of April, and businesses will need to repay any money borrowed through schemes like CBILS or deferred through the VAT scheme.

The closure of support schemes and the start of repayments could create a crunch point for cashflow, so leaders must consider any liabilities they have incurred and the potential impact on their operations.

Factoring this in now can help businesses prepare to manage any potential pressure and enable them to start taking appropriate steps.

Finally, and most crucially, where management teams find cracks in their operations, they should open a dialogue with stakeholders including suppliers, customers and lenders as soon as possible.

In our experience, creditors are more likely to restructure debt at the early stages of difficulty, while proactive action only maximises the time a business and its advisers have to review the available options and find the best path forward.

Businesses in Scotland will face challenging conditions for some time to come, but transparency and careful planning now will give them the best chance to survive and thrive.

Chad Griffin, partner in the restructuring advisory team at specialist business advisory firm FRP