By Gordon Larson of EFT Finance
I have long held a view that almost every business at one time or another, no matter how big or small that business, struggles with their cashflow. I would even go so far as to say that cashflow is generally the biggest problem or challenge facing every single business in the world. When I worked as an accountant, the phrase often banded around was “Cash is King”, and this is still something I often hear people quote.In fact it is the main reason why I believe the role of a finance broker is so important to the SME world – even if a business holds cash in reserve and can cover a purchase outright, you just do not know what is round the corner.If you can spread the cost at a reasonable rate, then it often makes sense to do so over letting cash flow out of the business. There is also the consideration of course that an asset should in theory be income generating, and generally the income generated from a purchase will outweigh the cost of funds.
So now, as we enter the third week of the full blown COVID-19 crisis and resulting lockdown, termination of non-essential operations and general upheaval of life, the cashflow demon once again looms at the door of almost every single business in the country. If Cash is King even in normal times, then right now, it is acting Lord Emperor of the Galaxy.
One saving grace for the Forestry sector is that the government has deemed the timber supply chain to be “essential workers”. Operations may not have stopped completely, but suppliers may still be struggling to keep materials flowing, invoices will be slower in getting paid, and we may even see the general workforce reduced by sickness as the virus continues to take hold.
It may be helpful to some to point out that if you are concerned, anxious, or even in a full blown panic about how you are going to make it through the next 3 months (or more?), then you are definitely not alone. It is of course easy to say that you don’t have to worry, or worrying won’t help you, but far harder to put into practice. Fortunately, there are a number of options available to most businesses to help – some of which are available normally and a handful which are new governmental measures specifically targeted at keeping businesses alive through the COVID-19 crisis.
- Cut Your Costs
It seems simple, andcovers a few different scenarios, but if your revenues are decreasing it makes sense to reduce your outgoings where possible. Currently in light of the Coronavirus crisis, asset finance lenders are open to requests for payment holidays on Hire Purchase of machinery and vehicles. Some of the lower tier lenders are a bit less receptive, but across all of our clients for whom we have requested payment breaks, most lenders are being pragmatic enough to more or less grant every request for a payment holiday as a matter of course. If you are concerned about making your next payment on machinery or a vehicle you have a number of options. Get in touch with the broker who arranged it for you and they can request a break for you, get in touch with the lender directly, or if neither option suits for whatever reason my phone number and email address will follow and I would be happy to help.
- Furloughed Worker Scheme
In a sense this may have fit nicely under the first heading, however it is quite complex and the details are importantso it warrants some space to itself. The government recently announced that they will reimburse employers up to 80% of employees’ monthly salary when those employees are placed on “Furlough”. A new term in UK employment law, Furlough is like a temporary leave of absence, where a staff member remains on the payroll even when their role might have become temporarily redundant. This means if there is less work available, or staff are unable to travel to work for whatever reason (and can’t work from home), some or all staff can be placed on Furlough for any length of time between 3 weeks and 3 months (can be extended further). The employer should continue to pay either their full salary, or down to 80% of their normal salary, and can claim 80% back from the HMRC scheme. The mechanics of this are still a little vague, but the portal through which HMRC will be accepting claims is due to open on the 20th of April.
When it comes to a director of a limited company, especially in the case of a sole director, details are even more vague. One thing that is for sure, is that any director who has paid themselves in a tax efficient way through minimal PAYE (often £719 per month) and then topped up with dividends, only the PAYE element will be covered. This means that many directors if Furloughed will only be reimbursed to the tune of £575 per month. This is a sore one to take, but at the moment that seems to be the only option for a lot of small businesses. Also to note while on Furlough, a director will be restricted from carrying out any duties in service of the company, and can perform only statutory duties. This includes filing of accounts, running payroll for other staff and submitting HMRC returns.
- Coronavirus Business Interruption Loan Scheme (CBILS)
Initially, this scheme was hailed as something of a master stroke just by its sheer size and scope, but in practical terms unfortunately it has been somewhat shown up to be less heroic than first hoped. An important point to note is that it is a loan, and while there is a government guarantee for 80% of the capital, that is guaranteed to the lender and the borrower is still on the hook for the full balance of the loan. There have been a number of changes to the scheme since its announcement such as the removal of the need for directors’ personal guarantees on amounts less than £250,000, but this cumbersome and heavily caveated scheme is still seeing a less than 0.75% acceptance rate across the country.
In the first instance, applicants should approach their own business bank – if for whatever reason that avenue closes then a list of lenders enrolled in the scheme is available on the British Business Bank website. Alternatively, find a helpful broker who can try to guide you to the right avenue that suits your individual circumstances. I cannot stress strongly enough how important it is to think very carefully before committing to a secured loan in an emergency situation. This is something which should not be rushed, and it has to be the right thing for the situation, or it will be a coffin nail.
- Standard Cashflow Lending
Interest rates are currently very low, and so while you should think very carefully before taking on additional debt and ensure it is definitely suitable for your situation, debt is currently very cheap. You might have machinery which is unencumbered by a loan or the loan agreement has sufficient time elapsed that there is equity in the machine which can be released. A refinance agreement could reduce your normal monthly outgoings on finance agreements, and in some circumstances can even provide a cash injection into your business to help see you through the next few months.
Invoice Finance is another way of getting cash from outstanding invoices at the time you need it. There are various forms of invoice finance but each one releases funds from invoices which may have 60- or 90-day payment terms, and less a fee, you won’t have to wait for companies to pay you on their terms.
- Other Government Support
Businesses which have a commercial premises for which they pay business rates, or alternatively receive Small Business Rates Relief (SBRR), may be entitled to a non-repayable grant. Premises for which SBRR is applied should be entitled to a grant of £10,000 and applications are now being received by local councils and funds being paid to rate payers. There are slight differences to how each local council is taking the applications and distributing the funds.Check the website of your local council for details.
For those who operate as self-employed, a package of grant funding has been made available which will pay up to £2,500 per month to the self-employed individual, based on a monthly average of annual profits from the last 2 years. Again, the details of the logistics of this scheme are currently a little vague, but it will be administered by HMRC and may take some time to be put in place.
There may be some other methods perhaps more suitable to individual circumstances, and it is important to mention once again that you should think carefully before taking on additional debt, especially if it is debt which is causing current cashflow worries. Each situation is different, however, and it is often very helpful just to discuss your individual circumstances with someone. You can contact me by email on gordon@eftfinance.co.uk, by phone on 07825 664021 or on LinkedIn.
The most important thing to remember is that this will pass.
Gordon Larson
Forest Machine Magazine is written and edited by a forest professional with over 40 years hands on experience. We are dedicated to keeping you informed with all the latest news, views and reviews from our industry.
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