As businesses start to reopen, there will be many business owners who are starting to look at the future of their business. Whilst Government support has undoubtedly assisted many businesses over the past year or so, there are many challenges that are still to be overcome, and understanding what those are, and how they can be dealt with, will be fundamental in ensuring that your business has the best chance of survival.
Whilst many businesses will be looking at the liabilities that have been mounting up whilst they have been closed, there are also liabilities which will be falling due in the short to medium term which will no doubt add pressure to cash flow.
Lenders are starting to contact borrowers who took out Bounce Back Loans in the Spring of 2020. In addition, the 12 month interest-free/payment holiday for CBILS loans will also end for many in the next few months and businesses should ensure that they understand what the repayments look like on those.
Payment of VAT deferred for amounts due between 20 March and 30 June 2020 should have already been paid by 31 March 2021, unless you join the new VAT deferral payment scheme, which is open between 23 February 2021 and 21 June 2021.
The temporary measures introduced by the Government to protect tenants from overly aggressive landlords comes to an end on 30 June 2021.
These are just some of the costs that have been deferred, not written off. Repayment of these costs cannot be pushed down the track indefinitely. Taking action sooner rather than later will ensure that these challenges can be dealt with.
Inevitably as the country comes out of lockdown and the Government phase out their support businesses will feel a strain on their cash flow.
Understanding a business’s cash position in the short and medium-term is vital in helping business owners to assess what steps they need to take in order to keep their business moving. Devising forecasts with different scenarios will help them to identify problem areas. Our Cashflow Management page gives you further information on how this can work.
Whilst this is relatively straightforward, seeking assistance (either from your accountant or our team) in either preparing or reviewing the forecasts can really assist business owners with their reopening plan. Once you have ascertained what your future position is likely to look like, it will help your decision-making process as to what steps and/or external support are needed to assist you.
The main point here is to seek advice early in order to have as many options as possible to resolve viability problems. Cash flow problems can very quickly lead to pressures on the business if wages and/or suppliers cannot be paid. If this scenario resonates with you, seeking advice early from our Restructuring and Insolvency team should be high on your “to do” list.
Our team of experienced advisors will ask a number of questions to ascertain where the business is on the distress cycle. These include:
1. Can the business be saved?
It may be that post pandemic the business has a future but needs additional working capital in the interim. There are processes in the Restructuring tool box that can buy time to allow this to happen. Alternatively, there are other processes that can draw a line in the sand. The business may be able to continue to trade and pay its current liabilities. Additional amounts can be put aside to pay “old” creditors an amount in the pound in full and final settlement of these liabilities.
2. Do the owners want to continue to trade a struggling business?
It may be that all or part of the business can be sold, providing funds to pay creditors and saving jobs moving forward. A formal insolvency process, overseen by a Licensed Insolvency Practitioner (“IP”), is often used to facilitate a rescue of some or all of the business. There are a variety of procedures that can give the business time to maximise asset realisations.
3. What if the business has no future?
It is very important that directors are advised on their responsibilities to creditors. There are always questions as to whether a particular creditor can be paid, or whether a contract should be finished. There may also be implications for the directors personally if they have provided personal guarantees to certain creditors.
Our team is well-placed to advise you (or your clients) on all of these questions and will be able to explain the advantages and disadvantages of the different options available to you.