By Natasha Frangos, Partner, haysmacintyre & Shalini Khemka, Founder and CEO, E2E

The spread of COVID-19 across the world has had truly devastating effects for  businesses of all sizes across the world. With the situation changing on a daily basis, there is still little clarity as to when the world will emerge from the pandemic. In the face of this crisis, business leaders and owners need to act proactively and practically, in order to help protect the long-term future of their organisation in the face of this crisis.

Keeping things on track: business continuity planning

To help businesses survive this crisis, keeping tabs on profit and loss and cash reserves is particularly important. In order to make fully informed decisions about how to move forward, business owners need to understand where income and costs are the highest. A number of businesses are now looking at their cash flow forecasting, and how the crisis will be affecting this.

As an important first step, businesses need to factor in how costs can be reduced, whether this be through assessing the existing staff head count; delaying new supplier contracts or reviewing existing contracts. And with COVID-19 impacting on cash income through sales or services for a large number of businesses, many will need to consider how far their existing cash resources will take them. To help manage cash flow, some businesses may need to draw upon alternative resources, such as collecting as much from debtors as possible, actively managing build-up on inventory, or even negotiating better payment terms with suppliers.  

Over recent years, there has been a noticeable shift in how businesses operate, with many moving their offerings to online platforms. And with consumers, clients and staff staying at home because of COVID-19, the need for businesses to make the move to digital platforms is now more vital than ever. Not only will allowing the business to operate online drive engagement on social platforms and retain client and customer relationships, but it can also allow them to generate income through digital services or online stores.

 Understanding the financial support on offer  

The various financial support packages that have been announced by the Government have been welcomed by businesses as they consider how to mitigate these testing times. However, there is still significant ambiguity surrounding how and when the promised support will reach those who are in need of it, and we’ve had a number of queries about the measures and schemes themselves. It’s a challenging time with the situation changing on a daily basis, and there is a considerable amount of technical information to be deciphered.

The Job Retention Scheme

With many businesses across the hospitality, leisure and retail sectors having locked up for the foreseeable future, there is little doubt that many business leaders or owners are concerned over the workforce they have invested time and money into. The Government’s Coronavirus Job Retention Scheme offers a small reprieve, in this case. Employees that are no longer able to work can be registered as ‘furloughed’ due to COVID-19 on HMRC’s online platform, meaning that HMRC will reimburse 80% of their wages (at a maximum value of £2,500 per month). On top of this, the scheme will now also reimburse businesses for the related employer national insurance and minimum auto-enrolment pension scheme contributions: a development that could save businesses a further £300 for each furloughed employee. This is a particularly welcome step that has eased the pressure for many businesses who may be forced to cut their workforce to reduce costs – however, furloughing itself is quite restrictive on small businesses who may not have a large workforce, as furloughed workers cannot provide any further services to the business while they are in that status. Perhaps, a middle-ground scheme could be considered by the Government, offering to cover the costs of wages but lifting restrictions on individuals completely ceasing involvement in the business.

And for those who are directors of their own company and are no longer able to work, HMRC has stated that, provided they are paid through PAYE, support will also be available through the Job Retention Scheme. However, as directors would need to qualify as furloughed, meaning that they should not work during the ‘lay off’ period, there is uncertainty as to how directors with ongoing duties will be eligible.

Business Interruption Loan Scheme

The Coronavirus Business Interruption Loan Scheme is now open for applications, and it’s something a number of clients have sought advice on. Currently, businesses are recommended to contact their existing banks to confirm if they are eligible. But some banks are viewing the scheme as too risky, and still require business owners to give a personal guarantee. This means that if they were to take out a loan of £50,000, while the Government may pay back 80% of it, the business owner would still be liable for 20% against their personal guarantee. Perhaps, a better solution would have been for the Government to fully cover a limited number of loans themselves.

Additionally, there are a number of questions surrounding the grants available for small businesses. Whilst a welcome relief for many, it is still unclear what applies for smaller businesses based in serviced offices. It seems that businesses are only eligible for the grants if they themselves pay business rates, thereby excluding such businesses.

Deferral of tax

Businesses that are UK VAT registered will also have the option to defer VAT payments for three months, between 20^th March and 30^th June 2020. For businesses that defer VAT, we understand that HMRC will be in contact in June to agree a payment plan to clear the outstanding VAT by 31^st March 2021. A dedicated COVID-19 helpline has also been set up to agree bespoke Time to Pay (TTP) arrangements, and it is important businesses make use of this early on. We are aware of a number of queries surrounding changes to the timing of payments, and as yet HMRC is willing to allow tax payments to be deferred; in fact, HMRC is aware that the current deferral advice may change and is therefore not setting up any TTP arrangements yet. It’s particularly important for all businesses to keep updated with the situation as it develops, so they are able to remain compliant.

The support provided by the Government is much needed, but any delay to payments will only add to the pressure on businesses that are already haemorrhaging cash. Despite the recent announcement of the relaxing of insolvency rules, the primary concern of many business will doubtless be the cash flow conundrum, as they seek to avoid administration. Throughout these troublesome times, advisors and support networks can provide a helping hand to offer guidance and clarify the confusing technical details.

Smoothing out the logistics

On almost every day of the crisis in the UK so far, new measures or restrictions have been announced. It’s therefore vital that businesses are able to adapt quickly to changes, and have the logistical challenges planned out to allow for smooth adjustments to new working environments. The vast majority of workers will now be based at home, so businesses will need to have all the practical details considered: are employees fully equipped with the relevant tools and technology they need? If information and confidential documents are being shared between remote locations, is the software secure and is the data fully protected?

And whilst maintaining relationships with employees and clients is vital throughout these challenging times, it’s particularly important to keep investors and stakeholders involved, too. By remaining visible and transparent, these key players will be able to see how the business is adapting to survive, and offering valuable guidance and advice where needed.

The road ahead may be wrought with obstacles and challenges, but business leaders need to plan for recovery, too. Acting proactively, and seeking external advice, can help you best ensure that your business is fully protected in the short term, and prepared for the long term.  

Regularly updated guidance and advice can be found on haysmacintyre’s dedicated COVID-19 page, and support can also be found on E2E’s helpline: +44 (0) 7969 161 805.