Small businesses are the hub of the UK economy as they drive growth and create many employment opportunities. Their contribution to the economy is vital. So, it is important for them to survive. Covid-19 played a big part in our normal life and it affected small businesses tremendously. Many businesses had to shut down for months. Some of the business had to close permanently as they could not maintain the cash flow necessary to survive.
UK Government has taken many steps to provide support for the business. One of the initiatives was to assist businesses with cash flows. The government introduced schemes such as grants, CBIL and bounce back loan. So, any business was eligible to apply and backed by the government.
- Loans of £2,000 to £50,000 (max 25% of turnover) over 6 years.
- The Government provide a 100% guarantee.
- The Government settles any interest and fees for the first 12 months.
- No repayments are due for 12 months.
- There are no early repayment charges;
- Interest is set for all loans at 2.5%.
This helped many businesses to get back on their feet and get the necessary cash to support their day-to-day activity. Nearly millions of pounds were made available to the small businesses. This resulted in the injection of the flow of capital into the economy.
It has been one year since the bounce back loan was introduced , and hence the repayment will start accruing shortly. This would be an additional outflow of cash that the business have to start considering. Businesses must consider their going concern issue and change the way they report the accounts. Businesses must ensure that they have enough cash flow to meet the payments and monitor it significantly. Lack of cash is one of the biggest reasons small businesses fail. The Small Business Administration stated that “inadequate cash reserves” are a top reason start-up fail. It is called “running out of money,” and it will shut you down faster than anything else. The first six months of a business is a crucial time for cash flow. If you do not have enough cash to carry you through this time, your chances of success are low. Suppliers often will not give credit to new businesses, and your customers may want to pay on credit, giving you a “cash crunch” to deal with.
Now that lockdown has been lifted, businesses must take measures and have enough cash available so that they can be prepared if the same situation repeats in the future. Businesses must take the steps slowly as this will take time for the economy to recover.
The following steps could be taken as part of the measure:
- Follow up outstanding payments – do not be afraid to be firm but fair. We are all in the same situation
- Continue to send your invoices promptly, and paid promptly – talk to your customers and emphasis how important it is that you are paid on time; if your invoices are automated add a personal message to let them know you are reachable and working from home
- Consider offering prompt payment incentives or creative ways of using shared services.
- Consider shortening payment terms in general based on your client and his financial circumstances. If invoices are paid 14 days late, so shortening payment terms to 7 days can help.
- Consider new payment methods, e.g., online payment services (Stripe, GoCardless) or accepting card payments. It is a really good time to put all the free time to automate your systems
- Are there options for diversifying, i.e., online services, offering vouchers etc?
- Control inventory. Having too much inventory ties up cash. Keep track of inventory so you can estimate your needs better.
- Try working out customer profitability or project profitability statements. You will be surprised to see how some clients exhaust more resources and not profitable. Explain to our customers your position by being honest and end unprofitable relationships.
- Look at opportunities to lease equipment/assets instead of buying them.
Here at outsourced ACC we ensure that our clients have access to cashflow information in the case that they needed to make quick decisions. We work with all major accounting software providers to ensure we provide you with the best solution that fits you. Putting out clients onto accounting softwares (which is fully inclusive in their package) helps them to maintain their books. All our client have benefitted significantly as they can make business decisions from present rather than historical information. We work effectively and efficiently to grow your business.
Get in touch with our team today to find out more.
Written by Kazi Ashraf