Insights

COVID-19: How to protect your cash – pragmatic actions to protect your business

Coronavirus is very quickly squeezing many SMEs, especially in the leisure and hospitality sectors. Steve Goderski and Peter Hart from our Advisory team set out some pragmatic actions you can take as business owners and management to ease the impact and protect your business.

1.   Cash is king

Before you think about strategic changes (for example, looking at new revenue streams or reducing costs), you need to make sure the business will be around to see those plans through. Stay focused: only cash matters in the short term; anything else is a distraction.

2.   Forecast your cash flow

Prepare a realistic forecast to estimate how much cash you’ll need in the short term. It needn’t be complicated, it just needs to be prudent – particularly when it comes to sales.

Prudence is important for two reasons: you want a clear picture for yourself of what your cash flow will look like, so you can take sufficient action to deal with it; if you need help from creditors / lenders, they’ll want to see your forecasts and be comfortable that these are sensible before they support you.

3.   Ask for help

Once you have a realistic idea of your cash requirement, there are a few obvious places to look for help:

  • HMRC: In normal circumstances, if your past record is good, HMRC is generally reasonable about deferring payment of tax bills if you can prove your proposal is realistic and your other creditors are being asked to do the same. The Chancellor announced in last week’s Budget that HMRC is ‘extending’ its Time to Pay scheme. We’ll see what that means in practical terms but, at the very least, it should mean that HMRC’s usual criteria for delaying / deferring tax payments will be further relaxed.
  • Bank / lender: Speak to your current funder. Ask them (depending on what sort of facilities you have) for a payment holiday / rescheduling of your repayments or a temporary increase in your overdraft / working capital facility. Again, measures were introduced in the Budget designed to facilitate additional bank lending – the ‘Coronavirus Business Interruption Loan Scheme’. The British Business Bank is running this scheme and expects to issue details on how to apply in the coming days.
  • Suppliers / landlords: Speak to your creditors, particularly the large ones. Show them your forecasts, explain what other measures you’re taking and ask them to relax their credit terms. Be upfront with them – they’re much more likely to co-operate if you ask them for help rather than just unilaterally delay payments.
  • Refinance / raise additional cash: If your existing lender won’t help, there may be others who will. There have never been more options for businesses looking to borrow than there are today. You may have been with your existing lender for many years, but there could be someone out there who can better support you at the moment and you shouldn’t rule out this option.
While some of these measures may initially seem overwhelming – coming up with a coherent plan and ‘selling’ it to your creditors may feel outside of your natural comfort zone – we have no doubt that they can be done. We’ve helped countless clients to navigate cash flow issues – sometimes a coordinated plan, fronted by professionals, has a better chance of being accepted than a more ad-hoc approach.  We can also assist with other, longer term measures that might be relevant, such as phasing payments to creditors over a number of years (via measures including Company Voluntary Arrangements) or reassessing resourcing requirements.