Managing your cash flow in uncertain times

Moore

1st May 2020

Money Matters

Moore

By April Foster

Moore

NEVER before has the mantra 'cash is king' been so important. In these uncertain times it is vital to manage your business's cash flow closely to ensure it comes out the other side in good health.

At Moore, we know that right now you are juggling looking after your teams and keeping your business going. Difficult decisions and trade-offs will need to be made. Below are our top tips to help you ensure that cash flow is managed well, so you can survive the impacts of the pandemic and return to thrive once the worst of this is over.

Ten top tips for cash flow management:

1. Speak with your staff

As many will be working remotely, communication is vital. Your staff will be just as concerned as you are. Communicating transparently should mean they are more responsive to a variety of voluntary alternatives. These might be temporarily reduced hours, accelerated holiday schemes or salary cuts and deferments which may avoid or reduce the need for redundancies.

The government job retention scheme may also help you retain jobs for those where there is currently no work available. Please remember that while an employee is on furlough, they are not permitted to do anything for the business at all or you jeopardise your ability to claim the grant.

2. Create a 13-week cash flow forecast

All businesses need an accurate rolling 13-week cash flow forecast. This should be kept up to date with the latest available information and will show you all expected receipts and payments over the next three months. You can then understand your liquidity position and the levers you can pull to help it improve.

3. Credit control is key

You should be in touch with your customers to get firm payment dates for your invoices so that you know when your cash will be coming in. This is key so that your cash flow forecast is based on accurate and timely information, rather than just assumptions.

Make sure that invoicing is still happening as quickly as possible. Have you got a plan in place in case your normal billing process is interrupted by illness? Key to getting the money in, is getting the invoices out.

4. Identify your crunch points

Once your bank receipts are accurately forecast add in your expected payments. Start with the regular ones - salaries, PAYE, rent, rates, VAT, loan repayments, corporation tax payments, credit cards and direct debits. Then pull in your desired accounts payable schedule from your accounting system. This will start to give you a picture of your forecast cash flow. You will see crunch points around large outflows such as rent, VAT, loan repayment, PAYE and salaries. Once you know where your crunch points are, you can start to manage your payments to navigate them.

5. Review your non-essential expenditure and budgets

All businesses incur both essential and non-essential expenditure. Reducing or stopping any non-essential expenditure is sensible. This could include expenditure on marketing, training and development, capital expenditure, internal projects, new and replacement staff.

6. Use the help offered by the government

The Chancellor has already announced measures that will help manage your crunch points. Probably the easiest of these to access will be the deferment of your next VAT payment (that falls before 30 June 2020) until 5 April 2021. Don't forget to cancel your direct debit if you plan to use this.

Many clients are also having success with asking HMRC for deferral of payment of two or three months' worth of PAYE and NIC liabilities. You must call HMRC to agree this. HMRC is also agreeing to payment by instalments of corporation tax liabilities.

The government's coronavirus job retention scheme has also been launched along with support for the self-employed.

7. Speak to your bank

If the current crisis is affecting your business, do not avoid the issue. Raise your concerns as soon as you can with your bank relationship manager. You may find they are able to help by offering repayment holidays on business loans, relaxed banking covenants and providing short-term financial help.

There is also the coronavirus business interruption loan scheme, which can be accessed through your bank. As well as providing partial guarantees to the lender, the government will cover the first 12 months of interest payments as well as arrangement fees, so businesses will benefit from lower initial repayments.

You may also be able to defer capital repayments for up to one year. The maximum amount that can be borrowed is £5 million but this is limited to 25 per cent of turnover in 2019 or double the annual wage bill.

8. Speak to your customers

Not all of your customer base will be affected in the same way. For example, those businesses acting for supermarkets may find them receptive to early payment of invoices.

You need to get an early handle on what work will still be coming in so that you can plan how you will deliver it while staff work from home and possibly while a proportion are ill. Managing customers' expectations during this time needs better than ever communication and customer management. You will also want to reassure customers that your business is still able to support them.

If some of your customers are in real trouble, you should consider asking them to pay your outstanding invoices before undertaking further work for them, especially if that work is going to require additional costs for you. For other clients in a stronger financial position, you may be able to agree up-front payment for work.

9. Speak to your landlord

Landlords are willing to talk and may offer you help in terms of agreeing a period of arrears or a rent holiday.

10. Speak to your key suppliers

We recommend proactively speaking to suppliers to negotiate extended credit terms. Suppliers would rather you agree a payment date with them rather than simply defaulting on your obligations.

For further advice on managing your cash flow through this difficult time, contact Moore Chartered Accountants on 01536 461900 or visit www.moore.co.uk for further information.