The current impact of COVID-19 is so unprecedented and for many businesses, the speed with which it has played out has left many feeling helpless.
It follows that one of the first questions that business owners will be asking is ‘how long can we survive until the worst (hopefully) passes?’ Simply, the answer depends on how much cash the business currently has in order to keep current operations as “whole” for as long as possible.
In reality not many businesses, especially in the SME space, will have sufficient cash reserves to simply wait it out and fund inevitable losses unless they operate in one of the designated essential sectors and may actually experience increased demand.
What we have been seeing at Quantuma is that for most businesses the immediate response to the crisis has been to look to pare back operational cost drivers by furloughing employees; reducing number of shifts etc. but also stretching supplier credit terms (perhaps predictably) even more.
In many cases the above measures will not be enough and stretching creditor days past breaking point is a risky, if understandable strategy at present, for some businesses.
However, business owners and directors should ensure that as well as looking at the obvious strategies they also explore less obvious avenues. Summarised below are some additional cash preservation strategies business- es should consider:
• Approachingallcustomers(especially the larger ones) to request that all overdue sales invoices are immediately brought up to date
• Temporary suspension of the offer of credit terms (i.e. request customers put you in funds first if requiring urgent production or supply)
• Approach financial stakeholders, utilities and landlords to explore payment holidays etc.
• Last but not least ensure that constant attention is paid to the evolving nature of the Government’s raft of announced measures to support UK business and ensure that where your particular business qualifies for help the application process is prioritised
The most important document that any business should have right now is a cashflow forecast.
Whilst small and medium sized businesses may not need to provide one to some banks when applying for CBILS backed loans a business owner, regardless of business size should have one. It will not only help to show where the pinch points are and how long the business can continue without additional support but if your bank does need one, they’ll be easy to produce.
Whilst banks are changing their lending criteria in line with Government guidelines they are still lending cautiously. Where banks won’t require sight of cashflow forecasts or business plans, the lenders will instead rely on their own information to assess credit and business viability.
The above suggestions are clearly not exhaustive and some will only apply to certain situations but we hope that this article will help emphasise that an obsessive focus on cash generation and preservation should be a constant preoccupation for business owners during this period of uncertainty.