• 9 things you need to do if cash is under pressure in your business
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9 things you need to do if cash is under pressure in your business

03 September 2021

Is your business one of the many experiencing cash flow pressure? Are you unsure how you will pay back additional debt you have taken on to survive or are you struggling because of reduced levels of trading? As the economy emerges from lock-down, making sure you have enough working capital to grow and managing any debts are key to success.

If your business is facing liquidity issues there are a number of practical steps you can take to improve the situation in the short to medium term. Below is a practical 9 step checklist that will help you to manage cashflow and get your business on track.

     1. Prepare a robust short term cash flow forecast

    2. Customer receipts

    3. Supplier payments

    4. HMRC

    5. Landlords

    6. Cash conservation measures

    7. Inventory campaigns

    8. Additional funding

    9. Open and clear communication

1. Prepare a robust short term cash flow forecast

A short term cash flow forecast looks at the incoming and outgoing cash flows of your business, usually daily or weekly for the next 13 weeks. It is a critical planning tool for assessing your cash position and to understanding whether your business can operate within available cash resources. If your business cannot operate with the available cash, you need to consider what remedial action to take or how much support you will need to get through the liquidity crisis.

Find out more on how high quality cash flow forecasts can support your business.

2. Customer receipts

Discuss with your customers the possibility of early/staged payment to maintain cash coming into the business. You may have significant commercial leverage with certain customers which could be used to accelerate receipts.

3. Supplier payments

One of the simplest mechanisms to deal with cash flow pressure is to extend credit or reschedule payments with your suppliers. Given the current circumstances, outgoings are potentially negotiable, even if the cost has already been incurred.

4. HMRC

Throughout the pandemic, HMRC have been supportive of businesses with cash flow pressure. For example the automatic deferral of VAT arrears and a subsequent opt-in arrangement to extend the payment period. If your HMRC arrears are a significant cash flow issue, early engagement with HMRC is essential if you want any Time To Pay arrangement as a mechanism for paying arrears in instalments over an extended period of time.

5. Landlords

The Government has made it clear that once businesses are open they should start paying rent or come to an agreement if they haven’t done so already. The current ban protecting commercial tenants from evictions now runs until 25 March 2022. That provides a period of time for tenants and landlords to negotiate and agree how Covid-19 related rent arrears will be settled and, possibly, the basis and level of future rent.

If your business has had to remain closed during the pandemic, a new arbitration process underpinned by law will be implemented to support the settlement of Covid-19 related rent debts. The intention of this being that both landlords and tenants share the financial impact of closure.

6. Cash conservation measures

Each and every line item of spend should be critically assessed and any expenditure that is not essential to keeping the business going should be stopped or deferred. That robust short term cash flow forecast that you have read about earlier will give you detailed visibility of costs and is essential to this exercise.

7. Inventory campaigns

Inventory may be a significant element of your working capital. It should always be reviewed in times of cash pressure. There may be a build-up of slow moving or obsolete stock, whether finished goods or WIP, that could be quickly liquidated as a mechanism to release cash.

8. Additional funding

In a challenging situation, we typically recommend businesses engage with their incumbent bank to discuss what support the bank can offer. This might be a temporary overdraft extensions or increased draw down rates on invoice based facilities. Before doing so, you will find it useful to work up a considered proposal to outline the funding requirement in detail, when it will be repaid and steps to be taken which will mitigate downside risk.

If the above steps are insufficient to alleviate the businesses liquidity issues and it remains a viable enterprise, then it may be appropriate to seek additional funding through equity or debt solutions. Additional equity may be available from existing shareholders and/or specialist funds. Alternative debt solutions may be available through asset-backed facilities, peer to peer lending or direct lending funds.

9. Open and clear communication

The current environment is unprecedented and managing the cash position of your business is likely to require the support of all stakeholders. In our experience, timely, open and clear communication with stakeholders combined with a sensible transparent proposal is critical to obtaining support.

If you would like to discuss improving your cash position, please get in touch with Chris, Lee or Richard who will be happy to help. You may also be interested in our Annual Working Capital Study and The Business Interruption Verdict: Issues and Actions article.

 

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