How can growing businesses survive the COVID-19 era?

We are living in unprecedented times and the situation we find ourselves in as individuals and businesses was unimaginable only a few short months ago.

As individuals continue to be advised by their governments and health experts to remain in various levels of lockdown and social distancing, the impact on many businesses has been catastrophic.

SME’s have been hit particularly hard and numerous business owners and management teams are struggling to chart a clear path forwards amidst the uncertainty, with business survival being the priority for many.

The following article is intended to be a high level checklist of actions that businesses can take to help mitigate their risks and plan for the future. The emphasis is on being proactive, exploring all available options and adapting to the different world that we now live in.

1. Review your cashflows

Put together a financial survival plan. Start with a blank sheet of paper and your current bank balance. Review your business thoroughly, and put together a realistic and detailed projected cashflow for the year ahead. The main reason that companies fail is due to cash running out rather than not being profitable. Therefore, analyse worst case scenarios and understand when cash will run out. This information will help you to adapt your business and make the correct decisions so it can survive this difficult time.

2. Communicate with your debtors

Get in touch with the customers who owe the business money and encourage them to pay the business as soon as possible, perhaps by understanding their financial situation and offering incentives such as postponed payment plans or future/current discounts for earlier payment. Focus on getting cash into the business as soon as possible.

3. Engage with your creditors

Speak to your creditors and explain your financial difficulties and challenges. These are not normal times and your business partners will often be more flexible, particularly if you go on the front foot and approach them first. Use your existing relationships to try and negotiate deferred payment plans to delay your payments out. Try and incentivise your creditors further with legitimate offers of further business down the line.

4. Review your Pipeline

Look at your revenue plan for the last few months. Is there revenue that can be recovered/caught up when things get back to normal? Speak to your customers and work in partnership with them to plan further activity with an estimated timeline. If done well, this exercise will only help to strengthen your relationships with your customers.

5. Review your costs

Analyse all costs in detail and with a fine toothcomb. Eliminate any unnecessary costs where possible in the Lockdown period. Examples could include software subscriptions, membership fees, staff bonuses, trade press subscriptions. Finding lots of small savings could add up. Try and negotiate delayed/reduced payment for big ticket items such as rent. A positive outcome may not seem likely, but you won’t know unless you’ve tried. 

6. Tax deferrals

Investigate the possibility of deferring tax payments – VAT, PAYE, Corporation Tax. Currently, the government in the UK is allowing deferrals of due or overdue payments of tax from UK businesses, or agreeing time to pay arrangements.

7. Furlough your team

The Government currently pays for staff to be furloughed to the limit of 80% of your salary, up to ￡2,500 per month. Certain conditions need to be met, the main ones are that the employee must have been on payroll on 19th March 2020 and if you’re not furloughed by 10th June you won’t be able to be furloughed going forwards. The rules are changing from August, although the furlough scheme will continue. There are many stipulations and conditions to consider, including part time work options from July. Directors can also furlough under certain rules. I recommend looking at the scheme in detail.

8. Coronavirus Business Interruption Loan Scheme (CBILS)

This temporary business interruption loan scheme is open to businesses and offers funding options of loans, overdrafts, invoice and asset finance. The funding can be up to ￡5m for up to 6 years. The Government may support the business for the first year in terms of interest and fees. This loan scheme has been utilised in particular by larger businesses with strong balance sheets and cashflows. Many SME’s have struggled to be accepted on this scheme due to the lower credit ratings often seen with growing businesses. A detailed, professional business plan and strong financials are key to obtaining this finance.

9. Bounceback Loans

Available since 4th May, these newer state backed loans are awarded up to ￡50,000 and are interest and payment free in the first year. This scheme was launched because of the difficulty many smaller businesses were facing when applying for the initial CBILS scheme. These loans are much easier to obtain as business credit ratings don’t impact eligibility and the loans are also unsecured.

10. Innovation Grants

You could consider applying to Innovate UK to obtain an Innovation Grant. Grants are obtained when successfully applying for qualifying developmental projects within the business. It is worth looking at as you may have been working on a process change in the business which qualifies for funding. There are also many other schemes in this area, for example Innovate UK Smart Grants.

11. Local Authority Grants

Local authorities have received over ￡12 billion in funding to make payments to small and medium businesses in England during the COVID-19 outbreak. These are grants and as long as the funding hasn’t run out, should be relatively straightforward to obtain.

12. Specialised support for your sector

The government has schemes in place to support particular sectors, and it is worth researching to see if your business falls within one of these areas. For example, if your business is in the creative sector, there are schemes such as Creative England which may be able to provide funding for your enterprise. They address the financing gap for creative businesses by offering bespoke investments, loans and growth mentoring. They also connect national investor networks to regional creative businesses.

13. Communicate with your insurer

An unlikely route, but one worth trying – review your business insurance cover and discuss with your insurance provider. There may be some areas for loss of income (ie if you are a property rental business and have insurance cover which guarantees rental income) which you may be able to claim for.

14. Keep on top of latest developments which can impact the business

Government financial support is provided by various schemes which are constantly being added and amended as the weeks go by. It is worth keeping up to date with the latest changes. On a larger scale, following the impact of COVID-19 closely in the media may give you an indication of how and when things may change. Look particularly at the experience of other countries who are further down the curve.

15. Think outside the box

Are there any ways in which the business can earn extra revenue as a result of the changed circumstances? A good example of this would be restaurants that previously didn’t offer takeaway services which are now doing good business with home deliveries. A local greengrocer in my area has been doing a roaring trade by delivering fruit and vegetable boxes to homes to order. Some airlines have repurposed their passenger flights to cargo flights, delivering medical supplies and equipment. Is there an opportunity which your business can develop and implement?

16. Obtain independent advice

If you are struggling with any of the above suggestions, if the business can afford it, taking on a good adviser to assist at this time can be invaluable. For example, they may identify cost savings that you didn’t think about, they could help you develop a sophisticated cashflow model to give clarity on a path forwards, they can challenge your assumptions with a view to getting a better result. They will have experience with lots of other businesses and will be able to add a lot of value and critical thinking to your short term business plan, and your longer term goals too.

17. Borrowing on company assets

Does the business own assets, such as property, that a bank loan can be secured against? This should be considered as a last resort as you may be putting your asset at risk. It is only worth considering if all other options have been explored and your detailed business plan gives you comfort that the business will be able to repay the loan.

18. Raising Equity

Offering equity to investors via online sources such as Crowd Cube could be another last resort method of raising funds for the business. The obvious downside here is giving away equity in the business. The business would have to have attractive long term prospects and a detailed business plan in order to be successful with this kind of fund raise.

Some helpful websites to look at which offer further detail are listed below:

https://www.gov.uk/government/collections/financial-support-for-businesses-during-coronavirus-covid-19

https://thebusinessfinanceguide.co.uk/covid-19/

It is important to keep a cool head and to stay positive. Things will get better, it’s just a case of when. Being proactive and pursuing every opportunity to keep your business functioning will increase the chances of your business surviving during this crisis, and then thriving in the post COVID-19 era.

Romesh Jeyaseelanayagam

CFO Consultant 

?

?RFJ Consulting Services is a CFO Consulting business offering a variety of services for growing organisations.

RFJ Consulting Services aims to provide exceptional quality, excellent value and highly flexible services to growing businesses through effective senior strategic & financial consulting.

Linked in: www.dhirubhai.net/in/romesh-jeyaseelanayagam