It’s time to plan for the aftermath of Government support. Here’s what you need to know.
Thank goodness for the furlough scheme, financial aid and tax reliefs which have stopped a huge number of small businesses from going to the wall during the pandemic.
Yet those that have survived arguably the toughest economic and social crisis since World War II face new challenges as the UK emerges from lockdown.
The various support schemes introduced by Chancellor Rishi Sunak have come to an end, and the banks are seeking to recover funds.
This includes money provided through the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loans (BBL) initiative.
Deferred VAT repayments have also become due.
Plans for working capital
The saying ‘Cash if King’ has never been more relevant and businesses that have not budgeted effectively during the past year may struggle to survive beyond the next few months.
What we do know is that SMEs are a resilient bunch and will be the backbone of any medium-term economic recovery. What owners will need, however, is adequate financing (traditional and alternative) and on-going government support.
SMEs are being urged to work with their accountants to review their current financial position. They must also be prepared to make some difficult choices.
Honest funding assessments
Dan Stopp, UK accounting manager at accounting software company Bokio, said companies need a clear picture of their financial capabilities and must be honest with themselves about their potential to recover in the short- and medium-term.
“When it comes to talking openly with clients, some may be reluctant to paint a complete and accurate picture of their debts and financial struggles,” said Stopp. “So ensure that any discussions are as candid and honest as possible.”
He believed that with this approach SMEs will be better prepared for any eventuality, even one that involves insolvency.
“While things may improve over time, an empirical assessment of a client’s current revenue figures will provide the most accurate projections for the months ahead. Once a revenue and expense forecast has been established, options can then be laid out and repayment plans devised to help rebuild and support SMEs.”
His top tips include:
- Analysing how many employees a firm can afford to keep on its books
- Considering short-time working
- Keeping customers informed and managing their expectations so they remain loyal
- Preparing for the reopening of trading by working early with suppliers and customers to gauge the level of potential demand and capacity as furlough ends and repayments kick in
- Checking if their own trade partners are still operating
Fintech finance options
Scott Donnelly, ceo of leading European fintech SME lender CapitalBox, believed that many SMEs will seek alternative lending options. The fintech disruptors can provide access to working capital more quickly and easily than many traditional lenders because of how they use technology.
“It is increasingly evident that financing needs to come from providers who understand the specific needs of SMEs – with a flexible approach, quick turnaround times and the ability to leverage technology and machine learning to make better decisions,” said Donnelly. “This is the time for alternative lenders to shine and be the catalyst for economic recovery.”
Research by CapitalBox reveals that across seven European markets more than half (52%) of SMEs had to apply for a loan to survive 2020.
What help is out there?
Take advantage of the Recovery Loan Scheme
The Recovery Loan Scheme opened to small businesses on April 6 2021 and runs until the end of the year.
Funds are available to help SMEs recover, invest and grow. There is a network of accredited lenders who will provide up to £10m per business.
The types of finance available include term loans, overdrafts, asset finance and invoice finance facilities.
The government will guarantee to the lender 80% of the finance, and the scheme is open to businesses that have already accessed previous Covid-support arrangements.
To be eligible a business must be viable, been impacted by the pandemic and not in collective insolvency proceedings.
More information: https://www.british-business-bank.co.uk/
Extend BBL repayments
The loan payments made under the Bounce Back Loan scheme are due so SMEs may want to take advantage of some pay as you go options.
These include extending the length of the loan from six to ten years or making interest-only payments for six months. They can also ask for a six month repayment holiday.
Lenders will assess the viability of a business and whether it can repay the loan.
Use the furlough and self-employment support schemes
SMEs that still need to protect jobs and retain skills can furlough staff until September.
Businesses must contribute 10% towards the salary of furloughed staff from July and 20% from August.
The government also announced in the March budget that the newly self-employed would be eligible for support.
The fourth Self-Employment Income Support Scheme (SEISS) has been set at 80% of three months’ average trading profits. This is paid in a single instalment and capped at £7,500. The grant takes into account 2019 to 2020 tax returns and is open to those who became self-employed in the tax year 2019-20.
The rest of the eligibility criteria remain unchanged.
You must be a self-employed individual or a member of a partnership, and your trading profit must be no more than £50,000 and at least equal to your non-trading income.
Don’t let emotion cloud your thinking
No-one would blame a business owner if they panicked in the current environment.
Yet this is the time for a clear head to assess if their company is still viable.
This is the advice from Peter Bracey, founder and managing director of Bracey’s Accountants.
“It can be difficult not to be emotional when you have invested years of your life in building a business,” he said. “But now is the time to look at the P&L, the balance sheet and cash flow, directors loan accounts and so on and see if the business really does stack up.”
He advises business owners to take some time to assess their personal situation and not make any emotionally-driven decisions without financial advice.
“For example, can you negotiate a Company Voluntary Arrangement (CVA) and liaise with creditors to reduce some of the debt? Is there an opportunity to restructure or liquidate your business and start anew when the time is right? Maybe you can acquire the trading assets and mothball the company in the meantime? You may just have to accept that the next few years are going to be tough.”
Working with the banks
If ever there was a time for banks to demonstrate they really do support the country’s SMEs then now is the time.
High street banks
The repayment of CBILS and BBLS loans will be keeping many small business owners awake at night and the question is can they rely on the traditional banks for emotional as well as financial support?
Luis Huerta, vice president at banking and financial services business process company Firstsource, said the banks that respond well to the emotional burden facing their SME customers stand to improve customer relationships.
He advised banks to go beyond simply training staff to spot and support vulnerable business owners.
“They can use tech such as intelligent automation to free up staff to focus on quality conversations,” he said. “By taking a holistic approach to empathy, lenders can alleviate pressure from their customers, paving the way for stronger, longer-lasting relationships.”
AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.