Does your business have enough cash to stay afloat in these challenging times?

  • 08 Oct 2020

By Mark Grady, partner at McBrides Chartered Accountants

There is still a lot of uncertainty about what the future might hold and whether businesses can weather the Covid-19 storm. Will your business shrink or grow following a potential local lockdown, and will you have sufficient cash to trade through the coming weeks and months? While cashflow projections are difficult at the best of times, good cashflow planning can make the difference between surviving or thriving.  

As the Job Retention Scheme changes to the less generous Job Support Scheme and further restrictions aimed at containing the virus begin to restrict productivity in some sectors, SMEs will need to look at their cashflow if they are to make it through the winter in good shape.

 

Working out where you are now, where you will be in three months, six months and a year down the line is an essential part of running a successful business – in good times and bad. Making sure that you have the cash reserves to support your business through these difficult times, is fundamental to safeguarding your business. Simply visualising the financial challenge ahead can provide clarity and reassurance compared to operating without an idea of what might come.        

If you can identify the pinch-points in enough time, then you will be able to have meaningful discussions with your creditors, bank and other trading partners. Indeed, once reliable customers may also be in difficulty and keeping in contact with them, will be important for ensuring cash continues to flow into your business.

A cashflow projection can also help you to make decisions about staffing requirements and if cashflow looks healthy, then you may be in a position to look at the Kickstart scheme to boost activity further.

There are many software solutions to help you complete a cashflow projection. You may have an app attached to your accounting software that enables you to prepare a cashflow projection, but if not then you can use a simple spreadsheet to prepare it. If you don’t have an existing template, then you can download our free and simple-to-use Excel cashflow projection spreadsheet available at www.mcbridesllp.com/coronavirus-business-help.   

Step 1: Cash-flow projection

  • Estimate revenues/costs for the next 12 months and create a base estimate of trading results
  • Consider any risks in recovery of current and expected sales invoice and liaise with your customers to gain clarity of the timing of cash inflows.
  • Build in other cash requirements, including debt repayments, current and deferred tax payments and capital expenditure. 

     

     

Once you have identified any shortfalls in cash requirement, you will need to put measures in place to steady the ship and ensure you have the funds you need. 

Step 2: Tips to deal with any identified shortfall

  • Accelerate recovery of revenues by improving credit control (dealing more effectively with your invoicing and recovery of funds).
  • Consider having discussions with creditors to schedule repayments over a longer period.
  • Consider the impact of reduced customer demand on staffing requirements.
  • Investigate the availability of government support grants.
  • Consider the incentive payments on offer such as the new Kickstart initiative for employers taking on new apprentices between 1 August 2020 and 31 Jan 2021. 
  • Consider the need for loans/finance – CBILS/BBLS – while these loan schemes remain available.
  • Approach HMRC to arrange a longer and scheduled repayment of tax liabilities.

If you need extra help and assistance to identify pinch-points and plan effectively, you can always ask McBrides or check the FSB Funding Platform. It will be time well spent.