Businesses have shown their resilience, and in the past months many have pivoted to source new markets and opportunities despite the challenges they have faced, and will face, in the months to come. Many have reviewed their supply chain to see how they can eradicate or at least minimise the effect of Brexit on their business and its cashflow.
They have asked themselves these questions:
• What will be the effect on cashflow if goods or materials take longer to arrive due to being held up at customs?
• Will my suppliers in the UK and overseas honour their existing terms of trade or instead seek to reduce credit terms?
• As my suppliers look to bolster their own cash reserves what effect will this have on my business?
• What effect will potentially longer delivery times have on my cashflow?
• Will my customers take even longer to settle their invoices if goods are received late?
It is important that businesses who think Brexit doesn’t affect them still consider the questions above, as your suppliers may heavily rely on goods and services from Europe.
Businesses should try to plan for these issues using scenario planning supported by cashflow-forecasting models and work out how they can fund the extra working capital needed. This may be partly achieved by proactively managing their own working capital cycle by reducing debtor days/increasing creditor days and revisiting their stock holdings. Alternatively, the owners may choose to invest personal cash and/or seek equity investment. An additional and important solution could be to revisit the funding options available for their business.
It is the right time for business owners to review their balance sheet and consider where their assets are and how they can leverage against these in the most efficient and cost-effective way.
Consider whether there is a better way to fund the future rather than the traditional facilities of an overdraft or a loan. For example:
• Could the business borrow against its stock and/or debtors? Where the business trades B2B an invoice financing facility releasing up to 90% of an invoice value could be a game changer for cashflow.
• What plant and machinery does the business own? An asset finance facility using the assets as collateral could release much needed cash into the business or refinance existing agreements on to longer and cheaper funding.
There will undoubtedly be tighter credit policies going forward as the lenders seek to manage their loan books and handle increased loan defaults. Personal Guarantees and supporting bricks and mortar security are likely to be a fundamental requirement for any lending so do not ignore the opportunity to make use of the Government loan schemes while they are still available until the end of January 2021. Borrow now interest-
free for 12 months to create a ‘war chest’.
Remember you can access the Coronavirus Business Interruption Loan Scheme (CBILS) for asset and invoice finance and you can have more than one CBIL, as long as you do not borrow more than £5m in total. Don’t ignore the opportunity to refinance existing borrowing over longer and better terms together with a capital repayment holiday for at least twelve months.
Don’t be afraid about exploring the options available. If you decide that you want to seek finance, then ensure you can show the lenders the scenarios you have modelled ranging from best to worst case with supporting rationale. You stand a much greater chance of success with an integrated package of information which ties together your future balance sheet, profit and loss and cashflow forecast into one concise document which a good accountant can help you produce.
The steps to take to find the best source of funding are firstly to approach your existing lender. They have built a relationship with you over time and have detailed information about how your business and accounts have been managed and they should be focused on their existing customers.
I personally believe there will be growth in the financing of stock/debtors in 2021 against the backdrop of delays in debtor payments and subsequently rising average debtor days.
If your existing lender cannot support, then we can support you with producing your funding request and have access to over 100+ prospective lenders via an online funding platform including unsecured finance.
You can find out more on our Brexit – information and advisory hub.
John Walsham, Business Development Consultant at Kreston Reeves
T: +44 (0)330 124 1399