Managing cash flow during COVID-19

March 31, 2020

Chris McCourt, corporate finance partner at Armstrong Watson, highlights how the accountancy, business and financial advisory firm is on hand to help businesses affected by the coronavirus outbreak

As the novel coronavirus (COVID-19) takes hold around the world, the UK Government has now taken steps to implement measures to support businesses during this time.

These range from increasing the Employment Allowance by £1000, to extending Statutory Sick Pay, to providing relief from business rates for certain sectors. In addition to the support measures being introduced, the Government has also announced it will be making £330 billion available to business as a consequence of the COVID-19 outbreak.

While this is good news, at the time of writing, there is little clear guidance around accessing
the monies, although we understand that further information is likely to be issued in the coming days and weeks.

An enforced lock down will impact all different sectors, not just those suffering as a result of the social distancing guidance from the Government. The impact is likely to manifest itself across the whole supply chain, from an inability to access stock to complete work in progress, to issues getting paid (collecting in your cash).

The consequence is that there is a chance that you might need additional cash for a period, especially if your turnover is affected by any COVID-19 shutdown.

There is a plethora of lenders willing to give you some external funding. However, due to the uncertainty with regards to how long this situation will last, it is imperative you take a step back to work out exactly how much your business is likely to need, in a number of different scenarios, before signing up to an additional credit line, especially if personal guarantees have been requested.

Preparing a short-term and medium cash flow forecast will help you plot the peaks and troughs from a cash perspective in different scenarios. This exercise will in turn highlight any cash holes in your business.

Once you have been able to identify the pinch points, an exercise in “smoothing” can be carried out. This is where you look at larger monthly payments and see whether you can break them down into more manageable chunks for a short period, so that your cash flow is more consistent.

If you still need additional cash, then the first port of call should be your existing funder – their rate of borrowing is likely to be more favourable than the alternative lenders and a quicker option too.

We also anticipate there will be some additional grants available, which will aim to assist businesses without requiring any additional security from directors personally, although, as detailed above, the information on this is scarce at present.

If your existing funder is unable to help, then we have access to a wide range of lenders that can step in and provide the support needed quickly. These lenders can assist with working capital, stock buying, asset purchases or property finance and our corporate finance team can talk through your requirements and potential funding options.

Taking action to establish whether your business will be affected by the impact of the COVID-19 outbreak is a sensible thing to do.

Knee-jerk decision-making will not help your business in the longer term, so taking measured steps will help you to maintain consistency.

Reviewing the cash implications on your business early will help you to weather the potential storm, but if this exercise identifies additional funding requirements for your business, then please get in touch with us.

Armstrong Watson
For more information contact Chris McCourt on: chris.mccourt@armstrongwatson.co.uk www.armstrongwatson.co.uk
@ArmstrongWatson

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