Cash flow – Life after lockdown

The Firefight

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Lockdown was announced on 23rd March and businesses began wondering how to manage. Certain businesses saw 100% of their income drop off overnight with a few having worrying signs prior to the lockdown.

Many businesses took action days before to make redundancies and then the government stepped in. New loan schemes were announced which were 80% government backed, a job retention scheme paying staff wages, grants available in tens of thousands for those worse hit and a new self-employed grant. With all the schemes in place, it seemed to at least help put those business’ that needed to, into a commercial coma.

From the outset there has been cash flow planning based around numerous assumptions. What your trade looks like now, how the grants fit in, how the job retention grants help and at what stage the cash flow planning is at. The cash flow planning can be split into three distinctive areas.

First 2-3 weeks

This is the firefighting stage where many businesses made drastic cash flow decisions. This required some level-headed decision-making including various discussions with customers and suppliers about trade terms, with the team about furloughing and/or redundancies, with the bank about funding, with local authorities over rates and grants, with landlords over deferring rents.

Reviewing cash requirements over the next 3 months

We are deep within this period now and thankfully a lot of the government schemes have brought a reduced amount of anxiety and an equalling of cash flow within businesses or at least some of the costs being covered. Most businesses have received this help by the end of April. Wages are being paid by government grants, other grants being received to help cash flow within this period, loans have been applied for and other major liabilities deferred where possible.

Extra care is needed here to not just jump straight into a new loan facility without understanding the impact.

Modelling out the next 3 months weekly is critical in this period. If your business is being mothballed for now can you cover the costs that remain? How can you pay yourselves if cash is tight? Can you adjust any personal outgoings like mortgage payments to reduce the pressure on business cash outflow?

Next 12 months cash flow – putting plans in place now

For businesses that are fundamentally sound, it is hoped that these can be cocooned or repurposed so that they can recover when conditions improve. They are able to take advantage of Government supports such as CBILS, BBLs, CJRS, VAT and other tax deferment and business rates support as well as rent reductions and other cost cutting exercises.

There is a critical need to plan the cash flow requirements over the next 12 months now. CBIL and BBL will requirement repayments of both capital and interest after 12 months, VAT deferments will come to an end, other taxes deferred will require paying, landlords will be looking to restart rent payments and vital working capital will be required as part of business trade. The same trading terms before this crisis may be a lot different now and when we come out of the lockdown so it is crucial to plan now.

We don’t know the full extent of the easing of lockdown and certain industries are likely to be released at different times. You therefore need to think about scenario planning, start off with worse case and we can help assist with building in better trade working capital management, planning more with various tax payment plans, planning to take up external funding, help both equity and debt focussed and making sure you have a viable plan to present to funders. There might also be a focus on efficiencies now.

Integrated cash flows including profit and loss and balance sheets are ideal for this. Using these numbers to break down into 90-day cash flows as a weekly management tool.

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