The economic impact of coronavirus is still unknown but is likely to be enormous. In this unprecedented time, there are many uncertainties regarding how businesses can remain viable.
Ercan Demiralay, Partner at Wellers, one of the UK’s leading accountancy firms, discusses the measures SMEs can take to alleviate the strain of coronavirus without relying on government support.
To help alleviate some of the stresses currently felt by owner managers, the Government has committed £330bn to support British enterprise. However, there are also some other key actions that can be taken which don’t require government intervention.
Regardless of a global pandemic, many businesses across the world will likely experience cash flow challenges during their lifecycle. The good news is that there are some effective steps that can be taken to manage your cashflow and minimise the impact on your business.
Firstly, take a look at the sales ledger to determine who still owes you money, then send out invoices promptly. This is also the opportune moment to review any unpaid or overdue invoices and chase for payment.
That being said, it may be that those who owe you money are also experiencing cash flow difficulties, especially in the current economic climate. If so, setting up a payment plan so that some money is flowing through the books is a good course of action.
Other avenues to consider include factoring, which will allow the business to collect a cash advance for a percentage of outstanding invoices. In this scenario, an organisation purchases a business’s invoices or debt, so the money is no longer owed to the enterprise.
Similarly, you could look at invoice finance. This way, you can draw money out as a loan against an invoice. Then, once the business has been paid by the customer, you can pay back the loan.
To encourage businesses to get ahead of their payments, you could also consider offering discounts to anyone able to pay their debts early.
Planning for the long term
As previously mentioned, cashflow challenges are not uncommon and, income will likely dry up for many businesses the longer the outbreak and lockdown endures.
For most types of business, the biggest outgoing will be payroll. In order to make savings, some will need to cut costs and it can be tempting to reduce the largest overhead – staff.
Although on the surface this makes logical sense, in the long run this can have a prolonged impact on a business, particularly if you have a loyal workforce that has helped build the brand. This will likely also have operational and customer service implications. So, perhaps redundancy should be viewed as a last resort.
In the past, businesses have found ways around redundancy. A good example is the manufacturing business, Barry-Wehmiller.
After 40% of their product orders dried up during the 2009 recession, the leadership asked all their staff to take four weeks of unpaid leave. This was effective because every staff member felt valued by the business and they could see, everyone, at all levels were pitching in to guarantee the future survival of the organisation.
Suppliers and stock
If you are experiencing cashflow difficulties, the likelihood is making payments to suppliers will become a challenge. It is therefore important that owner managers take charge of the situation early on by communicating with your suppliers as soon as possible.
In doing so, credit extensions or payment plans may be put in place to help during strenuous times. Remember if the supplier is unaware of the situation, they will not be able to help.
Having lots of unsold stock can also present an issue, particularly if it is perishable items like food. In this case, consider diversifying and be as agile as possible.
For example, if people aren’t eating at restaurants, can operations be switched to allow for takeaways and/or deliveries? If so, this could turn into an additional revenue stream and avenue for permanent growth once things return to normal.
Running a business during these uncertain times can, for many, feel challenging. But it is important to remember that many businesses will be experiencing similar situations and that there are often things that can be done to help alleviate the burden.
Whatever your situation, make sure you speak to your accountant about mitigating the impact. Wellers, have also provided information and advice on accessing government support during the COVID-19 outbreak.
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