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East Midlands Chamber News

Practical tips to help you manage your business cash flow

In these extraordinary times, business owners are under huge pressure to make rapid decisions to support and protect their people and ensure that business critical operations continue. For most owners, managing cash and protecting cash flow is the immediate concern. Here are some practical tips that you can put into action now that will help you measure the current state of your business as you face the challenges in the days ahead.

Understand your current position

Only by understanding your current position can you complete accurate forecasts and make informed decisions on the level of savings you need to make in order to continue operating. Don’t overlook the basics.

Ensure that all your supplier invoices and purchase orders are loaded onto your accounting system to give you a reliable indication of what is outstanding. Also issue all your sales invoices promptly (with all supporting documentation).

Talk to customers as soon as possible. While you can’t control what customers pay, it is important to pick up the phone and find out their current position.

Get an understanding of when they expect to pay. Most will pay within terms – what is important is that you get the best estimate of what you can expect in and when. Keep records of what was discussed so there is clear agreement.

Keep analysing your bank statement so you know what to chase and have a real time picture of where your cash is.

Review your costs

Review current payments and costs forensically. There may be costs you are paying for that should have been cancelled but you just haven’t had time to action. Simple items like mobile phone costs and software licences are often overlooked.

If you are in the retail, leisure, hospitality or nursery sectors, make sure you receive the 100% business rates relief effective from 1 April 2020. Inquiries should be directed to the relevant local authority. More information is available on the GOV.uk website.

Make a decision about other ongoing costs you may be able to do without in the medium term, which you can reinstate at a later point.

Manage your cash flow

If you have sufficient cash for the near future, keep a working three month forecast document. Roll it forward on a weekly basis to ensure that your numbers remain accurate. If you do not have a buffer, then you can manage your cash by doing some of the following:

  • Reschedule creditor payments: speak to your suppliers, landlords, and your bank and let them know your position. Try to reach an agreement on payments. Communicate with creditors sooner rather than later. Consider cancelling standing orders or direct debits so that you are in control of which payments leave your bank account and when.
  • Defer VAT payments: the Government has deferred the next quarter of VAT payments for all businesses until the end of June 2020. Businesses will have until the end of the financial year to repay those bills.
  • Reschedule tax payments: if you have outstanding tax liabilities, talk to HMRC about their Time to Pay service which applies to PAYE, NI, Corporation and other tax. You will need supporting documentation to evidence cashflow concerns.
  • Director’s loan: consider whether you are able to personally put cash into the business to support your short term needs.
  • Bank funding: access the Coronavirus Business Interruption Loan Scheme (CBILS) which is available to all businesses with a turnover of up to £45M. This can be accessed via 40+ accredited lenders and is available now.

We know that business owners across the UK are doing everything they can to support and protect their people. But if you have exhausted the above options and you don’t have enough funds, then consider the following options to avoid redundancies:

  • Temporary pay cut for your staff – work out what percentage reduction is needed from the cash flow forecast and then discuss and reach agreement with your staff on the amount and for how long. Speak to your staff before you reach a decision – many will do what they can to keep in work and support the business
  • Access the Coronavirus Job Retention Scheme (CJRS) – if you have no other option but to lay off staff, first think about using the CJRS, where you get reimbursed 80% of their wage costs, up to a cap of £2,500 per month. We don’t yet know how quickly the cash will be reimbursed to employers.