Tax & admin · 26 March 2020

How to navigate the financial impact of COVID-19 on your business

cash flow

The COVID-19 coronavirus pandemic is sweeping across the globe and thousands of UK businesses are bracing themselves for its impact. For the thousands of business owners, the threat of insolvency is not on the horizon, it is already here.

Many companies, partnerships, and sole trader businesses simply do not have the financial breathing space to manage an emergency cash flow situation – and this is the problem that COVID-19 is posing to businesses across the country in a wide variety of industries and sectors.

So how can businesses cope with the imminent financial impact of this coronavirus?

Talk to your business support network

Business insurance might provide the cover you need if your business has to stop trading indefinitely. Check your policy wording as you might have Business Interruption cover in your commercial insurance policy – speak to your insurer if you’re not sure. Once you have confirmed that you have Business Interruption cover, you will need to check whether you have an extension for “notifiable diseases”.

Talk to your bank about emergency finance options

The British Business Bank is in the process of setting up the Coronavirus Business Interruption Lending Scheme which will provide your lender with a government-backed 80% guarantee against the outstanding facility balance – so the finance should be attainable for all businesses.

Ask customers to pay the outstanding invoices they owe you

Morrisons has led the way with this by paying 3,000 suppliers instantly, regardless of the payment period. Small businesses or the self-employed with invoices issued should use this moment to chase for instant payment.

Talk to the Government through its business support helplines, some of which are dedicated to coronavirus. These helplines are designed to help small businesses with advice on how to minimise or cope with the impacts of coronavirus.

Talk to your landlord

Ask your landlord for some breathing space if you’re experiencing a drop in trade which is impacting on your ability to pay the rent. Landlords might take a generous approach, as these are extenuating circumstances, by providing rent breaks and/or payment discounts.

Get free professional advice

Take time to understand the options available to you and your business if cash flow worsens and the business becomes insolvent; that means there aren’t sufficient funds to pay bills as and when they fall due.

Also, take the time to talk to a ‘Time To Pay’ specialist that can defer your tax payments to HMRC. When cash flow problems arise, companies often struggle to pay corporation tax, VAT, and/or PAYE on time.

HMRC has already announced that they are waiving late payment penalties and interest for missed tax payments, but you should make every effort to get Time To Pay in place rather than assuming the revenue will provide automatic breathing space.

Restructuring

insolvency

If your business is experiencing a downturn in trade, restructuring your business operations could provide more time going forward to get back on your feet. Mitigating losses is key in times of financial distress so take advice on which parts of your business could be streamlined or cut back. Look into subscriptions and contracts that you could do without at the present time.

There are also formal procedures available to companies in the form of a Company Voluntary Arrangement (CVA) which shield businesses from creditor pressure and allow them to settle unpaid debts over time.

“Directors should also take extra care not to create individual financial exposure through overdrawn directors’ loan accounts and late payments that can breach personal guarantees.”

A CVA is a type of restructuring procedure and can sometimes lead to Administration which protects a company and its creditors from further losses and aims to resurrect the business and ensure the continuation of trade and employment. Emergency funding can help businesses navigate through troubled waters.

There are many different funding options available and we can provide free advice in this regard – some which will require a form of security and others simply provided as an old-fashioned capital loan. Bridging loans will be highly sought after in the coming months. Overdrafts can often be extended.

Invoice factoring

invoice guide

Invoice factoring is a key solution for businesses looking to recover outstanding invoices – typically at around 80-85% of their value. And there’s the Coronavirus Business Interruption Lending Scheme which will soon be in full swing; you’ll need to check if your business meets the finance criteria.

Directors should also take extra care not to create individual financial exposure through overdrawn directors’ loan accounts and late payments that can breach personal guarantees.

It is common for business owners to take money out of a company with the intention of paying it back later in the year – but these unforeseen circumstances may have thrown a huge spanner in the works which could lead, not only corporate insolvency concerns but also personal insolvency problems, for example, possible bankruptcy and/or Individual Voluntary Arrangements (IVA).

If cash flow really does begin to bite due to COVID-19 and your business is served with non-payment notices such as CCJs, statutory demands, or in the most serious situation – a winding-up petition – you should seek free advice from a licensed insolvency practitioner. These formal notices are often a precursor to liquidation and time is of the essence.

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ABOUT THE EXPERT

Keith has been involved in insolvency since 1992, during which time he's worked for both independent and national business rescue firms. He is knowledgeable in an array of business-related topics but his specialities include acting on behalf of financial institutions as well as negotiating with HM Revenue and Customs to arrange time to pay schemes. Keith is a partner at Real Business Rescue.

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