Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, gives some tips on helping businesses survive the impact of the COVID-19 coronavirus pandemic
Last year was a tough one for many businesses, with sustained difficult trading across a raft of sectors that was only just starting to see a ‘bounce’ after the recent election and increased certainty around Brexit.
There are many companies, partnerships, and sole trader businesses that simply do not have the financial breathing space to manage the emergency cash flow situation that we are now facing, and it is vital that they confront the challenges as soon as possible as its impact will have an immediate effect.
As a starting point, businesses should talk to their support network. Business insurance might provide the cover required should the company need to stop trading indefinitely. The policy wording should be checked for ‘business interruption cover’ and, particularly, whether there is an extension for ‘notifiable diseases’ - the insurer can advise if this is not clear.
Talk to the bank about possible emergency finance options. The British Business Bank has now set up the Coronavirus Business Interruption Lending Scheme that will provide the lender with a government-backed 80% guarantee against the outstanding facility balance – so the finance should be attainable for all businesses.
In addition, the Government has announced schemes to help mitigate the financial impact of coronavirus, with grants covering up to 80 per cent of the salary of workers if companies keep them on their payroll. This has now been matched by grants for self-employed workers worth 80 per cent of their average monthly profits. However, there will still be issues with cash flow for the self-employed as the scheme will not be available until the end of June.
Businesses should also ask customers, particularly larger companies, to pay outstanding invoices. Morrisons supermarket has led the way with this by paying 3,000 suppliers instantly, regardless of payment period. Small businesses or the self-employed with invoices issued should use this moment to chase for instant payment.
The Government also offers business support helplines (England – 0300 456 3565) , some of which are dedicated to coronavirus, giving advice on how to minimise/cope with its impacts.
Another option is to ask the landlord for some breathing space if a drop in trade is impacting on a business’ ability to pay the rent. Landlords may take a generous approach in these extenuating circumstances by providing rent breaks and/or payment discounts.
It’s also worth remembering that that there is a lot of free professional advice available to businesses. They need to take time to understand the options available if cash flow worsens and the business becomes insolvent; that means there aren’t sufficient funds to pay bills as and when they fall due – such as suppliers and HMRC. Many licensed insolvency practitioners offer an initial consultation completely free of charge to help identify the options available.
If tax payments are an issue, it may be worth consulting a ‘Time To Pay’ specialist that can defer your tax payments to HMRC. When cash flow problems arise, companies often struggle to pay corporation tax, VAT, and/or PAYE on time. Thankfully, HMRC has already announced that it is waiving late payment penalties and interest for missed tax payments, but businesses should make every effort to get Time To Pay in place rather than assuming the revenue will provide automatic breathing space.
If the business is experiencing a downturn in trade, restructuring business operations could provide more time for recovery going forward. Mitigating losses is key in times of financial distress, so take advice on which parts of your business could be streamlined or cut back. Look into subscriptions and contracts that are not needed at the present time.
There are also formal procedures available to companies in the form of a Company Voluntary Arrangement (CVA) which shields businesses from creditor pressure and allows them to settle unpaid debts over time. A CVA is a type of restructuring procedure and can sometimes lead to administration, which protects a company and its creditors from further losses and aims to resurrect the business and ensure continuation of trade and employment.
In addition, the government has now announced that additional insolvency legislation will be enacted ‘as soon as possible’. This will include a moratorium for companies giving them breathing space from creditors enforcing their debts for the period of time whilst they seek a rescue or restructure, allied with the protection of supplies to enable companies to continue trading during the moratorium period. It remains to be confirmed whether companies that are already insolvent will be eligible for the new moratorium.
Emergency funding can help businesses navigate through troubled waters. There are many different funding options available - some of which will require a form of security and others are simply provided as an old-fashioned capital loan. Bridging loans will be highly sought after in the coming months. Overdrafts can often be extended. Invoice factoring is a key solution for businesses looking to recover outstanding invoices – typically at around 80-85% of their value. And there’s the Coronavirus Business Interruption Lending Scheme which will soon be in full swing for businesses that meet the finance criteria.
Directors should also take extra care not to create individual financial exposure through overdrawn directors’ loan accounts and late payments that can breach personal guarantees. It is common for business owners to take money out of a company with the intention of paying it back later in the year – but these unforeseen circumstances may have thrown a huge spanner in the works which could lead to not only corporate insolvency concerns but also personal insolvency problems, e.g. possible bankruptcy and/or IVAs.
If cash flow really does begin to bite due to COVID-19 and the business is served with non-payment notices such as CCJs, statutory demands, or, in the most serious situation, a winding-up petition, it is vital to seek advice from a licensed insolvency practitioner. These formal notices are often a precursor to liquidation and time is of the essence.
Finally, if the regrettable situation of insolvency arises and the company has no option but to liquidate, company directors can get a free assessment for possible director redundancy pay of which the average payout is around £9,000.
In the current situation, business distress is accelerating on an unprecedented scale and taking swift action to arrest a business' decline is absolutely critical.