Cash flow – Don’t break the chain

7 April: As the Coronavirus lockdown heads into week 3, many businesses are feeling the strain. Some have been forced to close down for the duration, putting their trade into hibernation, while the majority are having to put some employees on furlough.

We all know cash is king and the lifeblood of every business. Planning forward and preserving cash within the business wherever possible is a vital component in ensuring that you can meet your payroll and at the end of the lockdown you have a business to return to. But in doing this, there are a number of long standing formal rules and now a few new informal, pragmatic ones.

Caroline Finn, one of my colleagues here at Dafferns came up with a great quote the other day, when discussing cash flow with her clients:

“Don’t be the one who breaks the chain”

What she means by this is, preserving cash does not mean not paying your suppliers. Every business has overheads to cover and payroll to meet. We are all trying to get through this crisis and if Company A fails to pay Company B, then Company B will not be able to pay Company C and Company C won’t be able to pay your business.

Mixing my metaphors; to avoid a domino effect, don’t break the chain!

Encouragingly, a number of our profitable Coventry and Warwickshire based clients are actively doing the exact opposite. With cash in the bank, they are consciously paying their suppliers on 7 days rather than 30 days at the moment and they should be applauded.

There are plenty of options available for all businesses to protect and boost cash flow in these difficult times:

As highlighted last week in my blog about CBILS, a checklist for many business is:

  • Access all available grants – although other than furloughing, they are not really there for the majority of our small business clients
  • Use the Job Retention Scheme – that’s what it’s there for
  • Defer your Vat payment due in the quarter to the end of June – this is now an option for all Vat registered businesses
  • Consider deferring Corporation tax and or Paye / Nic payments – ask for time to pay
  • Talk to your landlord about business rent payments and the possibility of a rent holiday or deferment
  • Access normal bank funding
  • CBILS loans, may be seen by many as a last resort, but the banks are being forced to take a more helpful approach
  • Small business directors need to take a pragmatic view on payments to creditors
  • The normal rules on preferring creditors and insolvent trading may have to be relaxed – although this cannot be taken for granted

Martin Gibbs is Dafferns’ Managing Partner – please get in touch if you need help or advice