CASH IS KING – now more than ever
Following the recent announcement of a new 100% Government backed loan scheme for small businesses, there are now two potential sources of loan finance available to SMEs impacted by Covid-19.
We believe that it is important to consider your cash flow not just over the coming weeks or couple of months but also for later in the year and into 2021.
No-one can be sure how long the economic impact of the current situation will go on for, but most people will agree that it will be months and not weeks. Similarly, we don’t know for how long the Coronavirus Loan Schemes will be available. The Government have initially suggested that they will be available through to September this year but this is not set in stone. In addition, interest rates may change, and the banks may be resistant to lend as the risk profile of businesses increase the deeper we go into a recession.
How far ahead are you looking? Do you need to extend out your forecasts?
There are other issues to consider too. Remember that once lockdown restrictions are relaxed, turnover is unlikely to leap back to previous levels. In addition, businesses will need to factor in any delayed or postponed payments such as deferred VAT, Corporation Tax and PAYE. All such sums will need to be repaid at some point, so even if your cashflow may look okay in the short term you will need to include these postponed payments to establish the overall picture.
In short, make sure that you understand your business finances over a longer time frame than the ‘here and now’ and you will be better placed to plan the way forward.
Potentially this is where the Coronavirus Loan Schemes can help and, in our view, if they are going to be needed then far better to get them in place now.
Even if you feel that the facility might not be needed, our view is still to get them in place now, so you have the security or comfort that they can be drawn down if necessary – a form of cash flow insurance.