I’ve got a guest blog for you this week from Sharon Gibbs, our longest standing member of the F Word Team
Keep your focus on planning ahead
Many businesses have fought, and are still fighting for survival during the current uncertainty. And although the relaxation of the social distancing rules means the return to work and the “new normal” for some businesses, we know that many are still closed and struggling.
There’s now light at the end of the tunnel for many, and all of the hassle of furloughing staff and applying for grants and loans will soon be over – so we can get back to business as usual……or can we?
The main focus this year has been on survival, but the fight is not over yet
We know that most businesses have taken advantage of the various strands of government support and delayed other payments:
- Deferring VAT, corporation tax and personal tax payments to next year
- Taking out Bounce Back Loans and CBILS that will become repayable in 12 in less than a year from now
- Having staff on furlough and needing to decide to bring them back or make redundancies
- Delaying supplier payments, including rent, and equipment leases
And whilst there was plenty of frantic and detailed financial planning going on in the early days of the crisis, we’re seeing a rather more relaxed attitude to planning now that the high octane stress has subsided.
So our message is PLEASE don’t relax your financial planning now the initial phase of the pandemic is retreating. The reality is that many affected businesses will feel most of the impact on their cash flow next year when “payback time” really kicks in. Not to mention should the second wave impact us in a significant way – something we can’t ignore and need to be planning for.
Quarter 1 of 2021 which is just over 5 months away is going to be a crunch time for a lot of businesses with the deferred taxes becoming due, and we have to start planning for this right now.
What can you do to ensure you can cross this bridge when a lack of cash starts to bite?
- Have a business plan that forecasts profit for the next 18 months at least
- Make sure you have a cash flow forecast as part of this plan
- Keep your short term cash flow forecast up to date – make sure this extends to Jan 21 and you can see how you can pay any deferred tax
- Identify any cash shortfall and the likely timing of this
- Look now at how you can finance any shortfall that shows up
There are still a number of options open through the COVID support schemes in place depending on the amount of any cash needed. Smaller amounts (up to £50k) could be covered by a Bounce Back loan, whilst larger amounts could be covered by a CBILS loan – both repayable over up to 6 years.
A second CIBLS loan may also be available to businesses already having taken advantage of this facility.
But remember that these facilities may no longer be available when you most need them so think ahead and do your planning now. Having come this far, do you really want to fall at a later hurdle?
But we’d always caution that before taking on debt be sure you think you can repay it – we are worried about the levels of debt small companies are going to have going into 2021, most likely with lower income and a fragile economy.
And as always we’d urge you to protect cash at all costs. Keep putting your taxes aside, ideally you want all of your tax liability in a separate bank account and if at all possible don’t touch any buffer cash you might have. We’re not out of this yet and we’ll need cash to get through.
And of course if you need any help with your financial planning, please let us know!