IT’S a phrase drilled into entrepreneurs by their accountants for generations – “Turnover is vanity, profit is sanity, but cash is king”. The old adage has never been more relevant than during the coronavirus pandemic.
This article formed part of The Scotsman’s Talking Money magazine. You can view the 2020 emag here >>
It’s not a lack of sales, or profit, that kills a business; it’s a lack of cash – that moment when an invoice from a supplier is due and there’s no money to pay it.
Even worse, it’s that sickening moment at the end of the week or end of the month when there’s not enough money to run the payroll and transmit wages into workers’ bank accounts.
Sadly, these are moments that will face more and more entrepreneurs over the coming months as the pandemic gives way to a lengthening recession. If consumers – and other firms – don’t feel confident enough to spend, it will mean some very tough decisions.
Yet there are ways to help manage cashflow during the pandemic and in the recovery to follow. Many of these measures can be used in our personal finances too.
1. Get the basics right
When you’re running a business, it can be too easy to leave the paperwork to one side for another night. But keeping accurate and up-to-date records of who owes you money – and to whom you owe money – is the essential first step in getting on top of cashflow.
It will allow you to start predicting when money will come into and go out from your bank account, creating a cashflow forecast so you can spot problems on the horizon and take steps to avoid them.
The same is true for households: make a list of the money coming in and the bills you must pay.
2. Seek professional help
If the idea of putting together a cashflow forecast is too scary – or not possible due to the day-to-day pressures of running your business – it’s probably time to seek professional advice from an accountant or other business adviser.
While the smallest businesses will often muddle through without a bookkeeper or accountant, the years of experience and expertise offered by professionals can make a difference during crises like Covid-19.
For households, help is also available and Citizens Advice Scotland is a great place to start, with its telephone helpline and network of high street bureaux. See the website at www.cas.org.uk
3. Level with your lenders
Once you’ve looked at your cashflow forecast, your bank or other primary lender might be your first port of call if you spot a problem.
If you have a loan or overdraft from your bank and you’re going to struggle to make repayments or pay the interest, speak to your lender as soon as possible.
If your cashflow forecast reveals a shortfall, ask your bank about funding options.
UK Finance, the trade body representing banks and other lenders, advises: “The earlier you engage, the
easier this will be.”
4. Talk to the taxman
If it becomes clear that you’re going to have trouble paying your next tax bill on time, speak to HM Revenue & Customs (HMRC).
You might be able to set up a “time to pay” arrangement, allowing you to spread payments over a longer period.
Self-employed entrepreneurs can speak to HMRC about the option for self-assessment payments.
In September’s winter economy plan, Chancellor Rishi Sunak gave companies that had already deferred VAT payments the option to pay in smaller amounts over a longer period of time.
For more information, go to www.gov.uk/difficulties-paying-hmrc
5. Speak to suppliers
As well as engaging with the taxman, it’s equally important to have conversations with suppliers.
No supplier wants to see a client go bust, especially during a recession, so speak to your providers if you think you’ll have trouble paying bills.
Many will be only too willing to help – UK wine merchant Berkmann has come up with payment plans for its clients, rather than resorting to the dreaded “payment on delivery” option. The wholesaler ensured its clients, such as bars, restaurants and other hospitality venues, had bottles to sell to customers when lockdown restrictions eased in the summer.
6. Invoice finance?
Invoice financing, or factoring, could be an option if you need cash fast.
When you issue an invoice to a client, your invoice finance provider – often a bank or other financial services company – will pay you an agreed percentage of the invoice immediately, normally around 85 per cent. When your client pays, you receive the balance, minus the invoice finance provider’s fee.
Invoice factoring follows the same model, except the invoice finance provider collects the payment from your client rather than you. Invoice financing has become much more common since the rise of digital technology.
7. Control stock levels
When business is booming, it is all too easy to slip into the habit of having too much stock.
During the coronavirus pandemic and subsequent recession, it is important to ensure your business only holds stock that you’re confident you can sell.
It is so tempting to buy extra items when you see them on special offer from your wholesaler, but look what your customers are actually buying right now and concentrate on those popular products.
Treat it the same as when you get home from work – eat what’s in. Stick to your shopping list instead of making impulse purchases.
8. Chase customers
If your business issues invoices and your customers are proving slow to pay, it’s high time to have a serious conversation with them.
It’s more than likely that they’re in the same boat as you in these testing times – trying their hardest to manage cashflow. But supply chains only work if firms are fair with each other and pay their bills on time whenever they can.
Equally, if your customers are struggling to pay a full bill on time then consider offering a payment plan – it’s likely to be better for your business to
have some cash coming in rather than
none at all.
9. 'Pivot' your business
One of the most over-used words in the business world during the Covid-19 crisis has been “pivot” – when a business switches from providing one service to another.
Putting aside images of Ross from Friends trying to manoeuvre a sofa up a staircase, adapting your business model could be essential, especially if stricter lockdown measures are imposed.
Restaurants switching to offer home delivery is a classic example, as is businesses shifting online to run everything from policy conferences
and product launches to yoga sessions and wine tastings.
10. Cut your costs
Looking to cut costs is arguably the most obvious step, but sometimes one that’s often overlooked.
Are you paying too much for electricity and gas at home, or in your shop or office? Is there a better broadband or mobile phone deal available, especially if you and your staff are working from home?
For many businesses, the largest expense is the workforce – and laying off staff is never easy. Is it possible to renegotiate employment contracts to reduce hours or rates of pay, rather than making people redundant?
These are difficult decisions, but ones many companies are having to face.
11. Big lending schemes
Among the many schemes launched by the UK government of late, two will probably prove key to company survival: the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS).
The BBLS is aimed at firms looking to borrow up to £50,000; the CBILS targets those seeking up to £45m. Both have year-long interest-free periods, but after that they must be repaid with interest.
The closing date for both is looming, on 30 November, For more details, see www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes
12. Other govt support
With Boris Johnson and Nicola Sturgeon appearing on our screens most days, it can be hard to keep track of what support is available for businesses and individuals.
The UK government has created an online coronavirus business support finder. It asks a series of simple questions and then gives you a list of UK-wide support. It also links to the Scottish Government’s website, which lists support available both nationwide and from local councils.
Make sure you understand whether the support is a grant, which doesn’t have to repaid, or a loan, which will need to be –
usually with interest. See www.gov.uk/business-coronavirus-support-finder
This article is taken from the November 2020 special report Talking Money which first appeared in The Scotsman newspaper. To receive your free delivered copy please email [email protected]. UK addresses only. Subject to availability.