Invoice-based financing solutions for SMEs
Call: 0117 403 7225

SMEs need to be clear about their 12-month plan advises Scott Braybrook

Optimum Finance interim CEO Scott Braybrook offers advice to SMEs as lockdown eases and we enter the next phase of the new normal

You’ve heard the old adage ‘failing to plan is planning to fail’.

We’re now entering a new phase and while the initial shock waves of the impact of the pandemic on SMEs has passed, there are undoubtedly going to be aftershocks ahead.

Fragile confidence

The government’s action on locking down Leicester this week emphasises the instability of our economy and how intertwined our financial recovery will be with public health concerns. The two are not mutually exclusive and that means small and medium businesses need to plan for all eventualities to get through the next 12 months.

According to our own research, we asked SME owner managers what their biggest areas of concern are now that lockdown is easing and productivity in some sectors is returning.

On a scale of one to five, most SME owners told us they were a ‘three’ in feeling prepared for managing their business through the recovery (with five feeling extremely well prepared and one, not at all prepared).

The top three areas of concern in the last two months have been loss of business (40.74%), lack of available cash in the business (37.04%) and general uncertainty (37%).

Action plan

Although as business owners we cannot influence the actions taken at national level we can consider how the next six to 12 months are likely to play out and put in place plans to mitigate risk.

A large part of this is putting yourself in the strongest financial position possible. Many companies have taken advantage of fiscal interventions in the form of the Coronavirus Job Retention Scheme (furlough), sector specific rate relief and grants, the CBILS (loan scheme) and differed HMRC payments.

However, these will not last forever and now is the time to look at the ending of these schemes, review the spikes in cash that will be needed to fulfil payments and make sure you have a roadmap for business recovery.

The best way to do this is to create a 12-month cash flow forecast – and you need to take into account the deadlines for payments and the potential impact changes in the government measures you have been able to access.

Here are the key dates and milestones which need to be on your radar in the coming months. Your cash flow needs to be able to handle these and while you cannot always predict how well your new business pipeline will recover – forewarned is forearmed in these circumstances:

  • Changes to furlough payments from August

From August a sliding scale starts and while you will still be able to claim back 80% of wages up to a cap of £2500, you, the employer will have to pay ER NICs and pension contributions for the hours the employee is on furlough to the end of the scheme in October. Make sure you consider this in your payroll forecast calculations – this can mount up!

In September, the government will pay 70% of wages up to a cap of £2,187.50 for furlough time and this drops to 60% in October to a cap of £1,875.  You will then be responsible for topping up to a minimum of 80%.

  • HMRC payments – VAT/Corporation tax

Many businesses have deferred their VAT and corporation tax payments. These will become due at the end of the current financial year (March 2021), make sure you take a deferred payment into account with future quarterly payments – March next year could be an expensive month!

  • CBILS loan scheme

For those companies who were able to access the much criticised as hard to get Coronavirus Business Interruption Loan Scheme the first 12 months is offered interest free. Make sure you know when these credit terms end and you need to start paying interest as well as the loan capital repayments. There’s no such thing as money for nothing, so make sure you can make the repayments and consider really carefully how one of these loans can really work for you and give you the best chance of long term recovery.

  • Office/workplace working vs. home working

Another area of the business worth reviewing for financial impact is the return to place or work. Employers are having to rethink their workplace environments and make changes. In the majority of cases this requires additional spend so a careful review of what you need to do to remain compliant and live up to your duty of care as an employer is required alongside a budget for adaptations and purchases.

And finally…

As a business owner the best thing you can do is be as clear as you can about what the future holds – we will all have to live with a degree of uncertainty for the foreseeable future so at least make sure you have total transparency about your business financial position. Knowledge is power and this will give you the best opportunity to get through the year ahead.

Categories: Blog