COVID-19 business cash flow checklist

Many businesses are still struggling with cash flow as a result of the Coronavirus pandemic, despite the support on offer.

As the Government begins to lift some of its restrictions, now is the time to review your operations and find ways to manage your cash flow so that you can begin to rebuild and recover in the weeks and months ahead.

Our experienced team have looked over the various steps that businesses could be taking right now. Here are our top tips that businesses need to consider at this time:

Capital repayment holidays

Ask banks and other lenders if you can defer making capital repayments on loans and/or borrowings.

Credit control

Every business suffers the pain of late and slow paying customers. The current coronavirus crisis means that many more suppliers may default on their payments, leading to a knock-on effect for your business cash flow.

Now is the time to ensure that your credit control function is working efficiently. If you don’t have a dedicated in-house facility, you can outsource this business function in the short term to help your business ride the economic storm.

A good credit control system is reliant on your business issuing invoices without delay so that any lapses in adhering to terms of payment can be followed up as soon as they become due.

Revisit customer credit limits

When the economy recovers, some businesses will undoubtedly fail as a result of having insufficient working capital and other customers will be higher risk owing to the sectors they work in. One way you can help to minimise your exposure to this is by reducing credit limits.

Schedule your tax payments

Last quarter’s VAT was deferred by HMRC but it will still need to be paid in March next year. Likewise, your July payment on account for self-assessment will be payable in January.

However, a company’s Corporation Tax bill will fall due in the normal way. To avoid being caught out, make sure you have scheduled when and how these payments will be made.

Frequency of staff wages

Some industry sectors traditionally pay their employees weekly or fortnightly but this can have a negative impact on your business cash flow, particularly if your terms of business allow customers 30 days to pay. Regular late payers or clients who are themselves struggling with cash flow, can exacerbate the situation.

Turnover issues

Clearly turnover will be important for your business, but you need to ensure that you do not fall into the trap of ‘over-trading’.  Blindly chasing turnover can be risky because of the up-front costs you will inevitably incur.

What happens if payments are not received until weeks or even months down the line? How will your cash flow be affected as a result? No-one wants to turn away business in the current economic climate but you may wish to consider asking for advance payments to cover materials and supplies.

Consider Equipment purchases and capital expenditure

Think carefully about committing to purchase any large pieces of equipment which could take a chunk out of your capital reserves.

If the equipment is necessary to keep your business going, consider a hire purchase agreement or bank loan so that you can offset the cost over a number of months or even years.

Match your staffing needs to expected demand

Ensure that you are getting the full benefit of the Coronavirus Job Retention Scheme by planning and diarising staff furlough periods to ensure you maximise your claim.

Review overheads

Take a good, hard look at your fixed overheads. Now might be the time to outsource your payroll and HR services to minimise the fixed costs of having in-house staff.

Freeing up funds in this way, leads to a leaner working practises so that your business can remain flexible with a focus on staying profitable.

Pricing review

Under-pricing your goods and services to attract new customers is a tactic used by many businesses. In the short term, it keeps the work rolling in and your staff busy. But the ‘keeping busy’ strategy only works for so long. In the longer term it can be detrimental to your business model.

Your customers will become used to paying the initial low price, making it much harder for you to then justify increasing the cost. Very soon you could find yourself providing goods and services as a loss leader which will lead to your business leaching money.

Try not to give into the temptation of under-pricing the work you do. Focus on the superior service that you are able to offer rather than being price-led.

Review your supply chain

Can you source items from alternative suppliers or negotiate more favourable credit terms from existing suppliers? It’s worth looking around or having the discussion with your supply chain to help your cash flow.

Prepare cash flow forecasts

Prepare forecast for four- and 13-week periods so you can check that you have sufficient working capital to fund any expansion in activity levels as the business ramps up.

As a business owner you will know that balancing the books and ensuring that your cash flow remains healthy, is critical to ensuring your business not only survives but, in the long term, thrives.

For more information on the points above or a discussion on your specific case, please get in touch with our team of experienced accountants.

Please note: It is not suggested that businesses cut customer credit limits while taking extended credit from suppliers. Anecdotally, businesses that are judged not to have treated customers and suppliers fairly during this period will be at a disadvantage post-crisis compared to those businesses recognised as having ‘played fair’ or having gone above and beyond to help their customers, suppliers and communities

Posted in COVID-19 Knowledge Hub, Left, Newswire.