The Chancellor made it clear that he was not in a position to save every business nor could he save every job. The Job Support Scheme, together with other measures announced are set to support businesses but understanding your cash position and pinch points in your cash-flow will ensure that you are thinking ahead for survival.
But it is still a deferral, it is not debt forgiveness. The length of repayments for Bounce Back Loans have been extended from six to 10 years and there is also an option to increase the term over which you can pay both your deferred VAT and, for those who pay income tax through Self-Assessment, your income tax liability, however the debt still exists. It may also cost more to service over the longer term – if you have to pay interest on a loan, by definition the interest will be more over 10 years than it would over six, so deciding whether to extend your facility will need to be reviewed.
The ability to evict your tenant (if you are a commercial landlord) has been further suspended until 31 December 2020, as has the ability to present a winding up petition for an unpaid debt, therefore easing the pressure on businesses who are continue to face cash-flow difficulties. However, there is a risk that business owners will lose focus on their cash position and, ultimately, the outstanding rent and other payments which have been deferred for a few months will all still be due at some point.
With the CJRS closing at the end of October, businesses will have to decide whether they want to enter into the Job Support Scheme. This is not as straightforward as it may sound: whilst a business will be able to claim for one-third of the hours not worked by a staff member, it also means that the business will have to pay the same amount themselves without being able to benefit from it, as the staff member will not be working during those hours. In addition, any staff member who is in the Scheme cannot be either made redundant or put on notice of redundancy whilst they are in the Scheme, so any reduction in workforce may be challenging. Therefore it is imperative that business owners understand how the Job Support Scheme will impact on their cash position and whether they need to review their workforce requirements before deciding to proceed with it.
The short term cash-flow forecast will be an important tool for business owners over the next six to 12 months, especially if businesses will be looking to repay outstanding liabilities over a longer period. If you have a cash-flow that can demonstrate your ability to maintain repayments over a longer period, that will give creditors comfort that there is a plan and that you can meet those outstanding amounts, just not straightaway. It will also help you to understand whether you can afford to benefit from the Job Support Scheme.
Not all businesses will manage to survive the pandemic, based on the Chancellor’s statement, however managing your costs appropriately will help to maintain business resilience. If you are looking to reduce your costs, there is research to suggest that a costs reduction process that is not aligned with the business strategy will not prevent the business failing. Instead, updating your strategy to reflect the new normal will enable you to cut costs in the areas that need it most, which in turn will help you maintain resilience in your business. This is especially true if you need to make redundancies.
Whilst creditors are unable to take action until the end of this year, the suspension of the wrongful trading rules has not been extended and will therefore revert back to normal with effect from 1 October 2020. This means that if you think that you are likely to encounter difficulties with your business, you should seek advice as soon as you can. Remember that directors have a duty to stakeholders as a whole (including creditors) once they become financially distressed.
Whilst there will be some welcome support for businesses, there are likely to be further challenges ahead. Understanding what your cash position looks like and making sure that you are aware of any pinch points in your cash-flow will ensure that you are thinking ahead and can take action as is required. If you think that you are going to encounter challenges with your finances, please get in touch with a member of our team as soon as possible and we can help you find the most appropriate solution for you.
If you are concerned about your business, download our practical guide for advice.