How will businesses cope when coronavirus support schemes end?

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Government measures, such as Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Job Retention Scheme, will end in the coming months. Are businesses prepared?

The end of the coronavirus support schemes is looming. CBILS and BBLS loans are due to come to finish at the end of March. CJRS will continue until April. And yet, we are still in lockdown, and many businesses are restricted in their operations.

While businesses are now better prepared for managing lockdown than they were last March, it is a long time to operate on limited or non-existent sales. Can companies cope without support measures in place?

The answer depends on the sector they are operating in and how nimble they’ve been in responding to the restrictions. Accountants, business owners, surveyors and insolvency practitioners tell us what effect this might have on SMEs over the next few months.

April is too early to end the schemes

Helen White, co-founder, houseof

As a small business, we were encouraged by the introduction of the pay as you grow scheme introduced by the Chancellor last week. It gives us more opportunity for business to bounce back in areas where we are still seeing COVID delays and disruption, for example shipping.

While as an online only business, we are not affected by lockdowns, we are still struggling to meet stock demands as the pandemic causes disruption and cost increases around the world. We believe we are not nearing the end. The schemes have been a lifeline to many businesses like us and we believe that ending the furlough scheme in April is still too early. We are not back to business as usual and we still cannot predict what is going to happen in the next six months.

Next steps: Preserving cash flow is key for all businesses in uncertain times and we the Furlough scheme and Bounce Back Loans have definitely helped with this however – nobody has seen the bounce back from the pandemic yet.

Verdict: Businesses are not ready to return to normal.

Some businesses have been able to adapt. Others might be in trouble

Chris Tate, business advisory director at Moore South

Some industries have not been in a position to adapt at all because of the nature of lockdown. Arts and entertainment have been particularly badly hit; there isn’t much by way of an alternative route to market.

If businesses are able to return to normal trading conditions, then the removal of those support measures shouldn’t be terribly detrimental. In fact, it’s probably a good thing, because it has gone on for some time. There’s almost a reliance on it.

You would hope that if lockdowns continue beyond the end of March, those schemes will be extended. For those businesses that have fared well, planning is still important, but if they’ve got sufficient working capital and reserves to comfortably navigate their way out of the support measures, there is a little less emphasis on planning.

Next steps: If a company’s working capital has been severely diminished in the interim, it’s going to have to be very carefully managed as things return to normal.

Verdict: Most businesses should be fine, but they should take a long, hard look at their cashflow and debts to make sure they can manage it.

Banks will reduce lending, but there may be alternative options

Stephen Wainwright, Partner at Poppleton and Appleby

We are going to be in uncharted waters and facing a number of headwinds. We will shortly enter a phase where traditional bank funding will become more difficult to secure. The market to re-bank a business with another high street bank will become increasingly difficult.

Lenders will start to turn their attention away from new lending and concentrate more on managing existing customer accounts, where profitability has deteriorated over the last 12 months, but liabilities will have increased.

However, as high street banks reduce their lending appetite, an opportunity will arise for alternative and specialist business lenders to play a key role in helping businesses survive.

Business owners must be aware that there are alternative providers in the marketplace that could help them with their financial problems. Alternative business lenders have a different approach to risk. They often focus on certain sectors and can be more flexible with their lending solutions and approach, which could be of value to businesses seeking to establish a new borrowing relationship. Businesses must make sure they have a business plan and strategy in place – this is key to resilience.

Next steps: It is crucial that a business with any sign of financial issues or worries contact a regulated turnaround and insolvency practitioner as early as possible, giving the practitioner the time to investigate their model and facilitate the bringing together of a rescue strategy that is to the benefit of all parties.

Verdict: The lending squeeze will put pressure on businesses, but other providers may come to the rescue.

It’s time to act now if your business is walking dead

 Peter Bracey, Founder and MD of Bracey’s Accountants

With the Federation of Small Businesses warning that at least a quarter of a million small businesses will fold unless more help is given, set against rumours of crippling rates on emergency loans, how much longer can – and should – businesses continue to struggle through? There is a now very practical consideration to be made: with the value of company assets and goodwill through the floor, winding up your business and starting afresh may be the best option.

Now is the time to take stock. With a couple of months before deferred VAT repayments are due and bounce back and CBILS loans have to start to be repaid, businesses have the time to review their fiscal health and plan either how they can come out the other side, or how they can execute an exit strategy in the right, legally correct way.

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 – by acquiring the trading assets and mothballing the company in the meantime? Or, is the right decision to retain a workforce on furlough, borrow and accept that the next few years are going to be tough?

Next steps: The first thing business owners must do now is to step outside the emotional state, which is a really difficult thing to do when you’ve invested years of hard graft and emotion into growing your own company. Look at the P&L, the balance sheet and cash flow, directors loan accounts, etc and see if the business really does stack up.

Verdict: There is no magic formula to get the vast number of businesses brought to their knees by the pandemic through these next few months and years.

The suffering sectors have a much wider impact than you’d think

 Lucy Cohen, co-founder of Mazuma

The sector we see suffering the most is the hospitality industry. Having been closed for so long, even the furlough payments to keep staff on board may not be enough to allow them to re-open once the pandemic subsides. The events industry has also been massively impacted – and this sector reaches further than you’d first think. Photographers, Graphic Designers, PR companies, Printers and more have all been affected by its closure. Then, of course, there are those within the wedding industry – Florists, Caterers, Bridal Boutiques, and small independent businesses who specialise in the sector.

While many of these businesses have been able to pivot, it still hasn’t been enough to replace their income or fully supplement the help provided by the government.

Next steps: Our advice is to mind your cash first and foremost. That doesn’t always mean cutting spending to the line, but it does mean assessing what is vital and what is not during this time. We’ve also been advising clients of all of the various payment deferral methods for tax that will help them with cashflow as the world slowly starts to open again.

Verdict: The impacts of suffering sectors is broader than it might initially seem.

Businesses have struggled to access the government-backed loans

Steve Richardson, director, Reparo Finance

We worked with Sapio Research to survey more than 200 SMEs nationwide to explore how they were accessing finance when it is needed, and whether the Coronavirus Business Interruption Scheme (CBILS) is adequately supporting their needs.

Although government-backed loans have had some success, with 52% of SMEs that applied for a CBILS having secured funding, the research ultimately shows that more support is needed to help ensure that viable businesses have a future.

According to the results of the survey, 85% of respondents say their company still requires financial help to address the impacts of the pandemic. Of those who applied or started an application for a CBILS loan, 48% have yet to receive any funding.

This shows us that government-backed loans are not straightforward to apply for and aren’t suitable for all companies.

Next steps: With many businesses struggling to get the financial help they need; some are looking to other forms of borrowing. 20% of our sample had already explored other options, while a further 65% were likely to consider looking in the future.

Verdict: There is an urgent need for finance, but businesses are open-minded about their options.

Business owners are anxious – the schemes should be extended

Martin Bown, founder and MD, My Management Accountant

When the first lockdown was imposed, we set up a peer support group for businesses affected by the situation and who needed advice on what support was available and how to secure it – including the SEISS, CBILS and BBL schemes.

It’s an initiative we’ve revived during the current lockdown to offer not only practical advice but to offer a supportive space they can join to talk about their concerns. The general consensus seems to be to hang onto your cash reserves and use the support schemes as widely as you can as right now, it’s impossible to predict when the current situation will end.

For many, the very fact there is so much uncertainty about whether the various schemes are to be extended or axed is causing a great deal of anxiety. It’s vital that decisions are made and communicated properly to remove this cloak of ambiguity and enable businesses to plan effectively for the future.

Next steps: It’s also vital that businesses know in good time what is happening with support schemes to allow them to plan effectively.

Verdict: Knowing that furlough will be extended will help directors make informed decisions for the rest of 2021, regardless of what the virus itself does.

Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.

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