Geoff Maclauchlan, Managing Director of Kingsmere Finance Directors, is no stranger to helping businesses navigate financial challenges.
With his Finance Director experience across a range of sectors, Geoff provides strategic financial and operational planning and management guidance to businesses aiming to increase their financial stability, efficiency and profitability, either on a part-time basis or with a project-led focus. With the UK moving out of the coronavirus lockdown, Geoff spoke to Northern Insight on how businesses can protect themselves in a post-pandemic world:
We finally seem to be seeing a light at the end of the COVID-19 tunnel and things are slowly getting back to a new sense of normal. However, even though we have had an economic earthquake, the tsunami is still to follow. In the coming months businesses will need to look at how they are prepared to face the challenges ahead. Many businesses have had the benefit of the Coronavirus Business Interruption Loan Scheme (CBILS), bounceback loans and grants as well as the benefits of the Furlough scheme and VAT deferral. This may have led to complacency and a false sense of security about their cash position but that is likely to change.
In October or January there will be tax to pay on earlier more profitable years. In March, the deferred VAT payment will be due. We will also have situations where bounceback loans and CBILS will need to begin repayments by businesses that didn’t really want to take on additional debt in the first place. There are also a range of other potential problems to address, whether that’s customers no longer being viable, employment issues or interrupted supply chains. There are a number of steps that businesses need to take to protect themselves now, rather than waiting until next year.
Cash flow forecast
The most important aspect to consider is to have a cash flow forecast which lays out, as clearly as possible, the way forward. It is often recommended that businesses should have a 13-week forecast in place but for this environment, that is not be enough. For example, if you have had CBILS or a bounceback loan, in 13 weeks you will probably still be in a reasonably healthy position, what about after that?
We still don’t know the full impact of lockdown, whether business will pick up quickly or if it’ll be a long, painful process. Any cash flow forecast must illustrate when the money will run out and what preventative steps can be taken, ideally over 12 months.
A business forecast to project how well or badly the business is likely to do in the coming months is also needed. It is best to adopt a fluid approach, enabling easy modification in response to what is an evolving situation and at the same time, always linking back to the cash forecast. This gives business owners and managers visibility on the ramifications of any policy changes and decisions made.
Now is a good time for business directors and managers to carry out a root-and-branch review, examining every aspect of operations, from staffing levels, orders and overheads to minimising cost, money collecting from customers, as well as exploring more cost effective supply chain alternatives.
To protect businesses from the impact of key customers going ‘bump’, serious consideration should be given to taking out credit insurance.
As part of an overall costs rationalisation, all insurances relating to the business should be reviewed, where possible using an experienced broker rather than going online. Online providers may give cheaper quotes, however there can sometimes be gaps in the level of protection, something that businesses simply cannot afford now. Communication
The final stage is to focus on communication. Talk to staff and make sure that key people in the business are happy, secure and have the resources and support they need. Talk to the business’ stakeholders, particularly the bank – it is essential that they know what management are doing, how it’s being done and where and when their help might be needed.
Also talk to suppliers, landlords, local authorities and HMRC, all of whom have vested interest in the survival and longer-term success of the business.
It is easy to feel overwhelmed by the challenges ahead, however by adopting a step by step and pragmatic approach now, businesses can increase their chances of survival and indeed success in the future.