This Tectona “In 3” reinforces how important cash planning is and why it is so much more critical now with so many unknowns as we emerge from Covid-19 lockdown.
Tectona are perfectly placed to help you manage your cash ups and downs.
Wild guess? – Businesses are going to be chewing up a lot more cash than usual over the next 15 months.
In normal-times (and these certainly are not normal times) you can assess the extent of the damage with some certainty. For example, when you lose a major customer or experience a bad debt, you know the worst case and can plan accordingly. The insidious thing about this virus is that no-one has the faintest idea how much longer it is going to go on for, and so estimating the financial damage is very difficult.
Some businesses are lucky – they had been building up reserves (meaning cash), due in part to Brexit uncertainty. Which meant that they had sufficient “fat” to weather the horrendous times of C-19.
For those not so fortunate it has been a matter of accessing whatever help they can to stay alive. Support available typically being a blend of the Coronavirus Job Retention Scheme (or furloughing), government backed loans (CBILS and Bounce Back), local authority grants, deferment schemes and the like.
But that is leaving them in a weak position as we start to ease out of lockdown in June 2020.
So it is surprising just how many are still focusing on the here and now without giving any real thought to planning for the future.
The old adage: “If you fail to plan, you are planning to fail” (attributed to Benjamin Franklin) is so, so relevant.
In 3, we show you where we see the 3 key pinch points
Pinch Point One – Scaling back up (June 2020 to Sept 2020)
Almost every growing business will chew up cash; this is called working capital and every business needs some.
In bald terms, if you are selling stuff on credit you will be having to stump up cash (to your staff, suppliers and fixed costs) before you actually get paid by your customers.
Tectona Tip: Given this and to ease your cash requirement you might want to consider getting part or full payment up front or on delivery.
In addition, any Time To Pay (TTP) agreement (usually a maximum of 2 months) with HMRC will still need to be adhered to.
Pinch Point Two – Support dialled back (September 2020 to November 2020)
As noted above, loads of businesses have survived largely due to the government support available. A key plank of this has been the Coronavirus Job Retention Scheme (or furloughing) and this runs, under current plans, until the 31st October 2020.
We believe it is unlikely that many businesses will have bounced back sufficiently to be able to survive without this support.
Applications to the so-called ‘free money’ of CBILS and Bounce Back end.
Pinch Point Three – A Perfect Storm (March 2021 to June 2021)
We expect the confluence of a number of things to lead to a particularly difficult time cash-wise for businesses:
- The free loans (CBILS and Bounce Back) start to bite back as interest payments and loan repayments cut in
- Any business that took advantage of the VAT deferment for periods from March until the end of June 2020 will need to pay that VAT by 31st March 2021
- Cashflow is already likely to be weak due to lower levels of activity
What can I do to mitigate?
Funders do not like surprises. And they certainly will not look favourably on any last minute, distress requests for urgent funding.
The obvious solution is to plan ahead and get any funding lines needed lined up well in advance.
The Tectona Profit Booster process is an easy way for you to plan ahead and enables you to really explore the financial effects of various strategies in an entirely safe environment; it takes the hard work out of scenario planning.
If you are at all unclear as to how to scenario plan, or how to manage your working capital properly, then the Tectona Profit Booster process is just what you need.
We can automatically generate robust and accurate forecasts for your business – meaning not only profit and loss account, but also a cashflow and balance sheet forecasts which all link together.
Tectona can quickly provide this for you by running you through our Profit Booster process which not only calculates useful metrics like your existing breakeven point, but also how the value of your business is likely to change with any combination of different strategies.
Cash forecasts are critical right now as they will show you how much of a hole you might have in your cash and when.
Having identified that, you will need to work out how to plug that hole. You will probably need external funding and Tectona will help you review the funding options available.
Contact the Tectona team so that we can help you work through your options.
Tectona Partnership helps business owners sleep at night by embedding one of our 15 commercially minded finance directors in your management team. Very often, a part time solution is the most effective solution for small businesses.
We make sure you have the necessary management information and strategic insight to make informed decisions. We will tell you what you need to know, when you need to know it.