EntrepreneurshipPersonal Finance

How to Help Your Business Survive COVID-19 – Accountant Expert Insight

Guest Post by Sohaib Ahmed – Founder of &facts.

In recent days I have seen a lot of posts across the internet from business owners asking for advice on how to weather the current pandemic.

IFG has done a lot of writing around coronavirus in recent days and as a Chartered Accountant who has primarily focused on financial planning for large businesses (FTSE100, Banks etc), I hope to add to that with some of my experience that can be of help to businesses currently finding themselves in a challenging situation.

Financial Services firms tend to do a lot of scenario and contingency planning; whether it is due to regulatory requirements or otherwise.

Planning for the current situation reminds me of the ‘run-off’ scenarios that are carried out by insurance companies as part of insurance regulations — assessing what would happen if the insurer stopped trading tomorrow.

Effectively, you are assessing all your contractual arrangements and what is required (operationally and otherwise) to honour all claims several years after the firm has closed — and ensuring the insurer has a sufficient cash reserve for that at any point.

This is very similar to what businesses struggling today need to do: assess all contractual arrangements, establish the resource required and make sure there is enough cash to survive.

Businesses can follow the below steps to help them with this:

1. Cash is king! 

Your cashflow is everything, and the first thing you should do is to establish your cash position.

If you’re a freelancer, then add up your business cash and your personal cash — because ultimately you are your business. For actual businesses, go through your business accounts and establish how much money you actually have available.

2. Collect your debts

It’s time to chase up your debts for any work that you have already carried out and not yet been paid for.

Even if you’re offering them payment terms and they aren’t ‘due’ yet, there is no harm in politely asking for it to be paid early — or at the very least getting some confirmation that it will be paid.

Start a cashflow statement

Start thinking about your expected inflows (money coming in) and outflows (money going out); and if possible, I would split each of these between contractual (or when you are 100% certain) and non-contractual (or when less than 100% certain).

Unfortunately, a situation for many businesses right now may be that they have no or little inflows. This is where understanding your outflows becomes more important than ever.

If COVID-19 has already started to impact your business, then this no-inflow is unfortunately your start position (eg. if certain clients have already communicated they no longer need your product/services, or you’re having to incur additional cost/loss of productivity etc.).

If it hasn’t impacted yet, then start this cashflow from what you know of your business as of today.

There is a good template available through the Start Up Loans Company website (see here).

Monthly Run Rate

Go through your sources of income (inflows); by type, by product, by service, by customer — however best and calculate your monthly run rate.

Then go through your expenditure (outflows); think about everything you pay and what expenses might be coming up in the near future. It might be worth going through your accounting software (xero, quickbooks etc. if you use them) or bank/credit card statements to remind yourself of what your expenditure is. Put them all into the spreadsheet as they are expected to occur over the months.

By completing this cashflow, you’ll understand your base position (if you did nothing, what would happen).

From this, you can now start to play with your assumptions and decisions to get the outcome you require — ideally a consistently positive cashflow throughout the required period, if it wasn’t already.

Understand your assumptions and risks 

You should go through your cashflow, list all the assumptions you have made, and understand why you have made those assumptions.

Assumption — something that you accept as true without question or proof

Examples:

  • You expecting a regular client to return / or not return is an assumption. What if their business is heavily affected as well? Or you might be assuming the absolute worst when you may not have to (i.e. they’ll continue using you).

Having to pay staff their due wages, paying bills or other contractual arrangements are typically not assumptions — as they definitely need to happen because you’ve agreed to it

Go through each assumption and challenge yourself, think through the decision you’re making — and if you have to, contact the other party as we’re all going through this.

A transport business I know of has been able to negotiate with their client (a local council) to pay them a retainer fee whilst the volume of business they are conducting has dropped due to Coronavirus. They initially assumed no revenue as they aren’t delivering any service — however it’s in the council’s interest too that a reliable supplier doesn’t go bankrupt and cause disruption when things get back to normal

Earlier, I suggested you split your inflows and outflows by contractual and non-contractual. Your non-contractual inflows will be your assumptions covered above.

For non-contractual outflows (eg. Google Adwords / Facebook Ads spend, out of contract utilities) — question the value-add of this expenditure at this stage; thus if it is still required and/or if you can replace it with something cheaper that will save you money.

Scenario (what if) planning

I would suggest using the identified assumptions to then create 2 or 3 cashflows statements. Create different scenarios, tweak your assumptions, tweak your decisions and see how you can ultimately make your cashflow positive throughout this period.

Other things you can possibly think about are:

  • You maybe ‘assuming’ the impact of Coronavirus goes away after 3-months, what if it’s 6-month or 12 months?
  • Rather than redundancies, what if you rely on Government support to pay up to 80% of your workers wages (currently for up to 3 months)?
  • When to start cutting discretionary spend such as marketing, entertainment, travel etc?
  • If your cashflow is still negative, then what if you were to take a loan / borrow money / get a government grant — through this process, you can identify how much you actually need to survive.

As you go through this process, you should come to understand the levers you are able to pull within your business and the impact they will have on your survival.

Available support

As a reminder (as at 20th March), you / your business might potentially be eligible for the following support (link) that can help improve your cashflow:

  • Mortgage holidays (through your Bank)
  • a Coronavirus Job Retention Scheme (80% of salary, up to £2,500 per employee)
  • deferring VAT and Income Tax payments
  • a Statutory Sick Pay relief package for SMEs (refund of up to 2 weeks of SSP)
  • a 12-month business rates holiday for all retail, hospitality and leisure businesses in England
  • small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
  • grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
  • the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank (first 12 months is interest-free) (see fatwa on the IFG website here)
  • a Self-employment Income Support Scheme (80% of trading profits, max £2,500pm)

Conclusion

Hopefully, the above proves to you that your business can weather this storm — but if you’re in an unfortunate situation where you can’t get to a positive cashflow figure then at least you’ll have an in-depth understanding of the challenge ahead when you come to consult your accountant, bank or other business specialist.

Scenario and contingency planning is something that small businesses should look to embrace more as by identifying risk early on they can build themselves to be more robust and withstanding.

If you require any support or advice, please feel free to drop a comment below and I will be more than happy to help!

Stay safe!

Guest Post by Sohaib Ahmed – Founder of &facts. You can connect with him on Linkedin.

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  • Just to add…contact the people you owe money to and if you are running out of cash, agree with them to pay them later, e.g. stock suppliers and landlords (likely two biggest cash outflows excluding staff, for whom you have the government furlough scheme). They wont want you to go out of business. The way it generally works is that you agree to pay a small amount each month over a period of time, e.g. a year, until it’s paid off. I would do that before taking any loans.

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  • Another point…agree with your suppliers to pay them less. I know you’ve agreed a price already, but go back to them and explain the situation and suggest say 10% off the price as a way of sharing the pain. They are likely to be making around 10% profit margin, so they are just taking out their profit margin while we get through this.

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