As many small businesses shut up shop or adopt new ways of working during the coronavirus pandemic, many are struggling to grasp the package of support measures that had been made available by chancellor, Rishi Sunak.
Among the most significant developments over the past week was the announcement of a new Job Retention Scheme, aimed at helping employers to keep on staff, even if they have no work for them to do.
Employers who commit to keeping such staff on the payroll, can classify them as ‘furloughed workers’ and will be eligible for a grant to meet the cost of 80pc of the worker’s salary, up to a maximum of £2,500, for up to three months.
However, significant areas of concern remain for employers’, including those working flexible or reduced hours, or employed on zero-hours contracts. News is mixed here as, while the Treasury promises an averaging arrangement to determine the salary of zero hours workers, they have confirmed that the rules will not apply to an employee who continues to work reduced hours.
Further uncertainty centres on the use of self-employed contractors. Workers who fall inside this bracket are not paid through PAYE and so are likely to be more at risk of being laid off. Many small businesses will be concerned about what this could mean for them in the long term – for example, will they have access to the skilled labour they need once activity starts to get back to normal?
Businesses that are unable to meet rent payments will also be protected from eviction until 30 June 2020. These measures are being made available immediately to help support businesses through the crisis and advice is available about how to access this support from the gov.uk website.
At the same time as coming to terms with the support being made available to them, many small businesses could be forced to make difficult decisions in the coming weeks. Depending on their financial position, some small businesses could start to experience cash flow difficulties very quickly and they could be forced to lay off some or all of their workforce as a result.
Before taking such decisions, business owners should seek advice, if only to ensure that they have done everything they can to improve their cash position and to ensure they take the right decisions at the right time.
Time to pay arrangements have been announced for all businesses and self-employed workers that might be struggling to pay their tax returns in the coming months. While further guidance from HMRC is still awaited, there are steps that businesses and individuals can take to improve their chances of securing an option to defer payments. For example, they should ensure they can provide accurate cash flow forecasts, along with a statement of all assets and liabilities. It is also important to ensure any outstanding returns are paid and up to date.
Prepare your cash flow before seeking government support
To assist business owners in preparing to make full use of the package of support available to them, here are some steps they can take immediately.
See the real cash picture
To access time to pay arrangements as well as other grants and loans being made available, businesses will need to demonstrate that they have an accurate understanding of their current cash position and how it might change in the future.
This involves cash flow forecasting. It’s not enough to know operating margins, you need to know exactly how much cash you will have left at the end of the month. This is particularly important for businesses that may have taken chosen to defer payments such as tax or rent, resulting in large liabilities being due at unusual times of the year.
Make sure there is cash in the bank
It sounds simple, but it makes sense to ensure bank accounts have sufficient liquidity and ensure there is an overdraft facility in place. As well as focusing on debt management, it might be possible to sell unwanted assets to top up cash reserves. Invoices should also be issued for any work already completed.
Turn orders into cash
In the current climate, it makes sense to consider whether future sales should be covered by a deposit or payment in advance. Business owners should undertake a review of existing customer orders and identify those that can be converted to cash in the quickest timeframe, prioritising those with the highest value. Keep a close eye on the order book and be realistic about which are likely to be fulfilled and which are not.
Stay close to customers and suppliers
During any crisis situation it is especially important to stay close to customers and suppliers. This will give you better visibility of how the bank balance might look in three months’ time and it also gives the business a chance to negotiate payment terms and collaborate to share the burden of any additional costs where appropriate.
Keep the cash position of the business under review
As we have seen with the spread of the coronavirus, crisis situations can evolve quickly and business owners have to make fast, well-informed decisions. To ensure they are able to do this, it is important to review cash flow forecasts regularly and discuss appropriate reactive plans.
For businesses that are practising remote working, it is important to ensure workers have access to the technologies and equipment they need. However, it is also important to have regular check-ins to keep workers engaged and motivated while monitoring workloads. This helps to identify if the Job Retention Scheme has become a relevant consideration.
Mark Perrin is an advisory partner at accountancy firm, Menzies LLP.