Coronavirus Pandemic – Business Survival Guide - Cash
There is no contest in relation to what takes priority at a time like this, and first and foremost this has to be to mitigate the spread of Covid-19 as much as possible, and as a society to stand together to support and protect those in need.
That said, there is no disputing the impact that the outbreak is having on the business community. Some businesses suffering an immediate impact and already having to make very difficult decisions, and others trying to prepare for a situation that is largely unknown.
One factor that will have a substantial impact upon a business’s survival is having enough cash (or access to cash) to continue to operate through this very difficult time.
We have summarised below the key steps that we can help you take to improve your business’s cash position.
1. Working Capital Reviews – Make sure you know what you need...
- Establish what cash your business needs to continue day to day operations i.e. working capital.
- How this is calculated varies from business to business. Furthermore, many businesses will encounter changes to their usual spending patterns, as a result of both the adaptations they have to make to how they operate (working from home support, health and safety measures, sickness pay) and also in many cases to reduce or delay certain spending.
- We have experienced staff who are able to help your business understand its working capital needs and how they may be impacted by the current position.
2. Cash Flow Forecasting – Make sure you understand what you have…
- Think of cash flow forecasting as an ‘’early warning system’’ as it will help you identify potential shortfalls in cash balances in advance, therefore giving you time to plan.
- As above, forecasts may change as spending adaptations are having to be made by many businesses and our modelling can quickly be adjusted to incorporate the changes to ensure the warning system is as up to date as possible.
- We have dedicated staff on hand to help businesses in preparing or sense checking their cashflow forecasts, as well as adapting these as things progress.
3. Cash Injections – Make sure you get what you need….
- Get the cash you need by utilising the support packages offered by the government or raising external borrowings.
- The current support packages offered by the government, are as follows (see other government measures at 4, below, in relation to reducing cash output
- Cash grants of up to £10,000 for all businesses that are in receipt of small business rates relief or rural rate relief.
- Cash grants of up to £25,000 for retail, hospitality and leisure businesses with a rateable value of between £15,000 and £51,000.
- Business Interruption Loan Scheme – up to £5m per business with no interest for the first 6 months (government will meet this cost), delivered through the British Business Bank with the Government guaranteeing 80% of each loan (subject to a per-lender cap).
- Banks/lenders are being asked to pledge to support businesses at this difficult time, and we have several contacts who can arrange:
- A review of existing lending facilities - can the term be extended to reduce the payments, or can the repayments be switched to interest only?
- Raise secured and unsecured loans.
- Raise money from debtor book (invoice finance).
4. Reduce/delay cash output – Make sure you do not spend more than you need to…
- We are not suggesting businesses should make cutbacks, however as we face a situation such as we are currently facing, it is inevitable that businesses will have to look to protect cash as much as possible.
- There are various sensible options that can be utilised to reduce cash output, without having to make really difficult decisions or cut back on trading,
- Utilise the government support packages that have been announced:
- 12-month business rates holiday for businesses in the retail, leisure and hospitality sector.
- Pubs with a rateable value of more than £51,000 and up to £100,000 will see their rate relief rise from £1,000 to £5,000 for 2020/21.
- Rebates of up to 2 weeks Statutory Sick Pay per employee who is off work due to Covid-19 for employers with less than 250 employees.
- Time to pay arrangements – Agreeing a delayed tax payment plan has always been a possibility (interest usually charged at 4.25%), however historically this was limited to a maximum 12-month period and generally only covered corporation tax or tax due under self-assessment. The government have committed to relaxing their usual policies – Note that the detail has not yet been announced, however it is likely that HMRC will want evidence of the impact that Covid-19 has/will have and cash flow modelling is therefore paramount to agreeing a suitable arrangement.
- Utilise the government support packages that have been announced:
- Utilise tax reliefs that are already available:
- Research & Development (R & D) Tax Relief – Can substantially reduce a company’s tax bill or if a company is loss making it is possible to surrender losses to receive a tax credit repayment from HMRC (even if no tax is paid).
- Capital Allowances – Can bring forward tax relief for certain expenditure i.e. fixtures and fittings etc.
- Take the cash you need from the business tax efficiently to reduce the net cash cost to the company (or increase your take home pay):
- Split income between family members to utilise personal tax allowances and dividend allowances.
- Consider taking loans to delay when tax will be due – note that there will be income tax charges based on a deemed interest and the loans need to be repaid within 9 months of the year end to avoid tax charges in the company.
- Delay dividend payments to post 5 April 2020 – This will delay the tax due on the payment from 31st January 2021 to 31st January 2022 and may also result in repayments of payments on account, thus reducing the burden on the company to meet your net cash needs.
- Consider succession planning options that will allow potential cash extraction at Capital Gains Tax rates of 10%/20%.
- Talk to your suppliers – Ask for extended credit terms (of course they may be experiencing similar cash flow issues, but if you do not ask you do not get).
- Talk to your customers – Ask for early payments and ensure credit control is prepared to chase payments.
5. Protect what you have – Make sure your assets/cash are in the right place…
- No one wants to face the possibility of their business failing, and the above measures are designed to help avoid that eventuality. However, we would urge businesses to consider protecting their assets now.
- Restructuring can be implemented to allow cash and assets to be protected from trade risk in the event that the business fails to survive.
- You will then be in a much better position to rebuild and start again.
We are here to support the business community and play our part in relieving some of the anxieties we as businesses are facing. The above is a start and we urge you all to put cash flow management in the list of your priorities.
The majority of measures introduced by the government have not yet been released so the logistics of claiming this support are not yet known, as soon as they are, we will update you all accordingly and offer support and guidance in accessing the help you need.
Please feel free to talk to us, we can assist with all of the above, but also draw from our experiences of how the businesses we work or partner with are tackling the current position and what measures they are taking.
Now is a time to stand together and we are committed to standing with businesses at this very difficult time.
If you would like to discuss any of these matters further, please contact our Tax Partners, Steve Crompton or Lucy Williams on the details below: