Hi, so I have been meaning to get round to blogging for a while and suddenly it seems there will be a lot of people wanting guidance over the next few weeks. I therefore thought it would be good to use the current situation for something positive.
The last few weeks have seen an unprecedented set of events and circumstances around the World, certainly not seen in my living memory. Everybody’s lives have been turned upside down.
The level of concern in the UK has been increasing since February as Coronavirus has spread worldwide, leading to a Budget focused on providing support to our economy.
Only a matter of days later, Chancellor Rishi Sunak, was standing next to the Prime Minister and Chief Medical Officer outlining another series of initiatives designed to help business with the promise that “we will do whatever it takes”. There is genuine concern and worry amongst the business community, but we want you to know that our team are ready to help you, your business and the wider business community get through this crisis. Whilst the primary concern of any organisation is the wellbeing and safety of their employees, a plan needs to be put in place to survive through this crisis.
The Team at TWP have pulled together a checklist which we will use in our business and think will equally apply to many of our clients. These focus particularly around finance and employee issues, as these are the two most common queries we have fielded in the last few days.
Cash Flow Planning
Cash flow will be critical in the coming weeks.
The impact of less cash coming in from customers mixed with payments that need to be made, and commitments to employees will more than likely lead to a quick deterioration in cash balances.
One of the first steps that we would recommend is forecasting cash flow for the next six to twelve months.
This doesn’t need to be done with expensive software or apps but can be plotted on a piece of paper or in excel, but it does need to carefully identify on a monthly basis the cash you expect to receive and pay out.
This cash flow forecast should also include estimates for various tax payments, Corporation Tax, VAT and PAYE – even if these are deferred under the Government’s Time to Pay Arrangements (see below). You will need to look at what happens to allow for a slow down in money coming into the business.
This will hopefully then give you an idea of your cash position if things deteriorate and people stop paying their bills. You can then make some decisions about what mitigating actions you might be able to take. Where shortfalls are predicted you can plan to fill the gaps with mitigating actions and also use the support schemes that are available.
Working Capital
These are ideas on how to try and maintain cash flow in your business:
1 – Invoicing
• Issue invoices more regularly and consider invoicing upfront or sending interim bills.
• Look at offering discounts, for example 5% if payment is made within 7 days to bring forward receipt of the money.
• If taking on any new customers ensure you use a credit check report for example, Experian.
2 – Debt Collection
• If you use a cloud-based accounting package, look at the possibility of automating your debt collection system – most cloud platforms will have this add on.
• If you have debts beyond your payment terms look at placing the invoice with a debt collection company.
• Look at financing your debtors using invoice discounting.
• If you have individual large sum invoices look at single invoice finance.
• If customers are struggling to pay – be flexible and allow a payment plan by way of monthly direct debit.
3 – Stock
• Look at your various stock lines and operate a just in/just out system.
4 – Payment to Creditors
• Contact your suppliers to discuss extending terms or agreeing a payment plan. This is important as whilst maintaining cash flow you need to be able to trade and protect your supply chain.
• If offered an early payment discount by individual suppliers, look at settling their invoices first.
5 – Capital Expenditure
• If considering purchasing capital equipment, investigate leasing or financing the equipment rather than purchasing.
• Extend the term of any finance agreement to reduce the monthly payments.
Time to Pay (“TTP”) Arrangements
The Chancellor announced in his Budget on 11 March that HMRC would support Business through this tough time with temporary time to pay arrangements for tax liabilities including PAYE and NIC, VAT and Corporation Tax.
This helpline is currently open Monday to Friday 8am to 8pm and Saturday between 8am and 4pm. HMRC has stated that this helpline can be used to:
• Agree instalment arrangements.
• Suspend debt collection proceedings.
• Cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately.
We can help you with this process. HMRC prefer that they are approached before the liability falls due though historically, they have still considered matters if they were contacted after the due date.
We anticipate HMRC being more agreeable to these arrangements given Government mandate, but they will want an explanation of how much is to be deferred, why (clearly CV given it is a dedicated helpline) and when you think you can start repaying these debts. We are advising clients to have a cash flow forecast to show to HMRC to demonstrate you have considered the uncertain times ahead.
Typically, we believe that HMRC will try to keep these arrangements to a short period of time, perhaps a number of months, however longer arrangements have been achieved in the past due to certain circumstances, and given the current uncertainties this may well change.
HMRC are at the moment trying to be helpful, but based on our experience already getting through to HMRC is proving difficult and time consuming.
Business Rates Relief
The Chancellor announced that all retail, hospitality and leisure businesses will not have to pay business rates for the tax year 2020/21.
Shops, pubs, clubs, theatres, cinemas, music venues, restaurants and any other businesses in the hospitality, leisure and retail sectors (with a rateable value of less than £51,000) will also receive a cash grant of up to £25,000 per business to help bridge through this period.
Details of how this will work are still not yet known but will be available via the Local Authority and are expected to be published imminently.
Grant Scheme for Small Business
The Government is providing funding for local authorities by making cash grants of £10,000 available to very small businesses with rateable values below £15,000.
Already part of the Small Business Rate Relief (SBBR) or Rural Rate Relief, the one-off grant of £10,000 will aim to help businesses meet their ongoing costs.
Business Interruption Loan Scheme
The Coronavirus Business Interruption Loan Scheme (CBILS) was announced by theChancellor in his Spring Budget 2020.
It will be made available to small business as loan finance, and will be made available by the main Banks. The Government have stated that they will underpin 80% of the loans to incentivise Banks to lend. However it is not free money as the Press would have you believe, the Banks have some exposure and so they will look for proper funding applications.
We spoke to our Bank Manager this week, and he confirmed that the details are yet to be provided, but he has told us that they expect to be supporting businesses that are viable and have come up with a business plan to show how they get through the current crisis.
It is aimed at small businesses that typically do not have underlying assets to secure the lending.
It is not likely to be available quickly due to the likely deluge of applications, so we would urge you to contact your Bank sooner rather than later to see if you will qualify for this (or any other type) support. Again we will help with any funding applications where we can.
Other Finance
You should also contact your business financers and personal Bank to discuss loan payment holidays and/or extending loan periods.
Again we understand that most credible lenders will be supportive in helping businesses through the short term.
Capital Expenditure
Our overriding message is ‘cash flow is king’ so if capital expenditure has to be spent, it should be where possible financed.
Also if you have unencumbered assets on the balance sheet, you may well be able to raise asset financing to raise cash.
With employees being required where possible to work from home, you should also consider the security of data, and if not already done considering moving information to the cloud, which may well offer a more secure, more accessible remotely and lower cost IT base than having in house servers etc.
Personal tax payments
The July payments on account are to be suspended – supposedly interest free.
VAT
VAT payments are to be suspended for the period to 30th June. As long are they are paid within a year. Full detail will hopefully follow shortly.
Landlords
Again speak to the landlords about rent deferrals and/or holiday.
Clearly reference will need to be made to lease terms, but we would expect and hope landlords to be supportive of any short term breathing space.
Coronavirus Job Retention Scheme
There has been an announcement to obtain 80% relief for salaries of those unable to work up to £2,500 per month. Hopefully the detail will be out early next week.
Statutory Sick Pay (SSP)
The government announced on 4 March 2020 that emergency legislation would be introduced for the payment of statutory sick pay (SSP) to employees with the coronavirus.
Employees will be entitled to receive SSP from day one, not day four, of their illness.
From 13 March 2020, all those who are advised to self-isolate due to the coronavirus outbreak are entitled to be paid SSP, provided they meet the other qualifications. Currently, this is expected to last until later this year, but is subject to change.
Businesses with fewer than 250 employees (employed as of 28 February 2020) can reclaim the cost of providing Statutory Sick Pay (SSP) to employees off work due to the coronavirus.
The government will work with employers over the coming months to set up the repayment mechanism but says that the eligibility criteria will be as follows:
• This refund will cover up to 2 weeks SSP per eligible employee who has been off work because of COVID-19.
• Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide the usual GP fit note.
• Eligible period for the scheme will commence the day after the regulations on the extension of SSP to those staying at home comes into force.
Other Staff Issues
Other areas to consider will include;
• Using leave to cover any time where employees cannot work either at their normal work place or at home.
• Reducing working time and pay – HR advice would need to be taken.
• Allowing staff to look after dependents – this is usually treated as unpaid leave but again HR advice would need to be taken.
I know there is a lot to digest here but hope that you find it helpful as a checklist or aide memoire to help put in place plans for your business.