Planning for Recovery

For business, the recent months have brought rapid and totally unexpected change. The Government’s reaction has certainly helped, with measures such as staff furloughing, tax deferrals, and guaranteed loans – but these have a limited life and we are already seeing HMRC taking a stricter stance on tax deferral requests.

If we assume that most analysts are correct in predicting a V-shaped recovery (issues will be significant but relatively short-lived) then what plans should you be making now to ensure you build an agile business that can deal with change and benefit from it?

Cash is King.

We have seen that banks continue to offer flexibility on covenants, payment holidays and rolling over existing facilities although The Bank of England has recently suggested that the availability of trade credit and trade credit insurance has tightened, and payment delays have increased in stressed sectors.

Demand for credit is high and expected to increase as companies start to reopen over the coming months.

• Maintaining even basic cashflow forecasts will show you what cash you need to survive, but also what you will need to take advantage of any upturn, as growth will require significant working capital. Forecasting cashflow will allow you to plan and ensure that any repayment plans, including deferred taxes, give you headroom to expand.
• Speak to your funders early so that you have the cash when it is needed.
• Consider postponing non-essential investment to preserve cash and plan to review investment next year when there is greater visibility on how finances have been affected by the pandemic, as well as other factors such as Brexit.

All change

The Bank of England has recently reported that insolvency practitioners and lawyers expect business failures to increase in the coming months as the Government’s Coronavirus Job Retention Scheme (CJRS) is phased out. Input price inflation remains limited overall and there is limited scope to raise prices, due to uncertainty about demand. It is likely that most businesses will need to reduce costs.

Many businesses are now coping with home working and flexible hours for the first time and most will have to streamline to adjust to a new normality.

Employees are your biggest asset and you’ll need your team when the upturn comes so consider alternatives to redundancy such as a temporary reduction in salaries.

• If redundancy is your only option, ensure that you retain those staff who can best help the business move forward when the time comes. These may not be the people who have been with you the longest. Remember that recruiting new staff can be a lot more expensive than retaining the good ones you already have.
• Non income generating areas of a business may seem like easy targets. Areas such as marketing and HR play an essential role for successful businesses, particularly those that want to grow, win new customers and look after their team.
  
• Employees will be feeling uncertain and vulnerable, so no matter what you have to do, make sure you communicate regularly and effectively.

Now is the time to truly assess your future needs and to make some difficult decisions. The best management will balance future needs with current problems rather than simply taking the easy option.

For further information please contact Alison Bradshaw.