Open for Business as new Normal Sign

The Cost Burden of Adapting Business through Covid-19


Now that the UK appears to have gone past the peak of cases for Coronavirus, the Government have started to establish steps to get the UK back to work again. However, the “new normal” is likely to involve an adaptation of existing businesses and for many business owners that may prove to be a step too far, especially with cash being tight. Many will now be faced with answering the question of “what next?” and we will look at some of the options in this article.

Social distancing measures come at a cost

Whilst the Government is keen for businesses to start opening again, there are many steps which need to be taken in order to facilitate a return to work for your employees. We have covered some of those steps in a previous article with some easier to implement than others. Whilst certain measures will be cost-neutral or less, other measures will involve additional costs (enhanced cleaning, additional signage, more personal protective equipment) and if cash is tight, then it will be even more difficult to determine the best areas to focus on with regards to spending money.

Additional costs may impact upon turnover

Many businesses are facing a reduction in footfall – from shops who are only allowing a couple of people in the premises at one time, to restaurants who are having to adapt to providing takeaway food only – and that reduction will be manifesting itself in a drop in turnover, whilst at the same time costing more to implement social distancing measures. There are likely to be a high number of business owners who will have to make a decision about whether they can realistically afford to open if turnover is going to be drastically reduced – the hospitality sector is one particular sector which will likely be affected more than others.

You may not need as many staff going forward

If your business is going to be operating in a different way to accommodate the “new normal”, you may need to reduce your staff levels. The Coronavirus Job Retention Scheme (“CJRS”) may be supporting your business for now, but if your workforce needs to be reduced, this will likely come at a cost, whether that be in the form of consultation (to make sure that you are adhering to employment law) or redundancy costs if you have to make staffing cuts – these are all costs that have to be factored in when looking at reducing your workforce and it seems unlikely that the Government will provide your business with financial support to do that.

Cash has been squeezed for a number of weeks

Regardless of the Chancellor confirming that the CJRS will continue until October 2020, the squeeze on cash looks set to linger. The number of CBILS accredited lenders has increased over the past few weeks, and the Chancellor has introduced the Bounce Back Loan Scheme, but the fact remains that there are a number of lenders who are reluctant to lend additional cash or provide more support, especially where there are concerns about the ongoing viability of the business. Unfortunately, this has meant that many businesses have been unable to access adequate cash to recover to pre-pandemic levels.

Deferred obligations will need to be paid

Business owners may have made use of HMRC’s ‘Time to Pay’ scheme for businesses impacted by COVID-19, as well as the VAT deferral offer, but these all need to be repaid (VAT by 31 March 2021). If you are worried about your business’ ability to meet these deferred obligations, seeking advice sooner rather than later is the key to survival. Taking on additional debt, especially in the form of an unsecured loan, to meet these payments is unlikely to be the best option.

Certain loans may not provide the solution you seek

With banks being more hesitant to lend, many business owners look to lenders who will provide unsecured loans that can be obtained quickly, albeit at higher interest rates. Serious consideration should be given before business owners decide to take on any additional debt during the current crisis, unless they are continuing to operate at a similar level as before. Whilst taking out a cashflow loan can seem like a quick and easy answer, it often becomes costly very quickly, with costs of servicing the debt being high when compared with more traditional borrowings. It should be noted that these loans can be of assistance, but they should be considered as part of a wider solution, not the only solution. Looking at how your debt is currently structured as part of a wider restructuring exercise is important if you need additional lending to continue.

A healthy balance sheet does not equal healthy cashflow

Many businesses have value locked up in assets which can result in liquidity issues, especially if you have no means to convert stock into cash at the moment. Being unable to meet payments as and when they fall due is one of the key indicators of insolvency, regardless of how solvent your balance sheet is, so if you are in a position where you can’t pay your suppliers, either now or in the next few months, as a director, you need to seek advice to ensure that you are acting in the best interests of all stakeholders, not just the shareholders.

The situation does not have to be terminal

Plenty of business owners will be reading the above and thinking that they will be coming to the end of the road for their business. This does not have to be the case.

There are many options available to business owners, some of which may involve cost reduction or adjustments which can be carried out as a wider business review. Restructuring your business to make it more resilient and agile, and therefore better able to cope with the difficulties arising from the pandemic can be a positive step, however the sooner you start to look at the options available, the more options there will be to look at. Of course, there may be a need for a more formal process; we can help guide you through all of the different options.

Seek help if you any of the above points resonate with you

Being a business owner is a lonely place at the best of times – speaking to someone independent of the business about the options available to you and your business, especially in the current crisis, will prove extremely beneficial. There is no time like the present to look at the challenges your business may be facing, and doing that with a third party can help you to be more objective about the changes you may need to make. Our team have extensive experience in helping businesses to overcome their challenges, so please get in touch with us if you need to talk to someone independent about your business.

Difficult decisions will need to be made in the not too distant future – seeking the support and advice to do that sooner rather than later will make sure you are equipped to make those decisions in a timely manner.

If you would like to speak with one of our business advisers or cash flow experts about the options available to you and your business, please email or call 0808 144 5575.

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