The bad news seems to be getting worse each day. The businesses that survive will be the ones that act quickly. I am afraid I do not agree with the advice to just wait and see what business support the Government puts in place.
The main issue for many businesses is payroll costs and their employees. You cannot normally just lay off staff for a period of time (unless that was specifically in their contract) so to do that you have to make them redundant. The cost of redundancy can be insurmountable to a business already facing cash flow problems. Employees are also due notice pay usually based on a weeks’ notice for every complete year worked. This is limited to a maximum of 12 weeks pay for 12 years’ service or more.
This all ignores the damage done to a business in the loss of those employees and their skills and knowledge and the concern of whether they will ever come back. There is an incentive to be honest and talk to staff collectively asking them to help and agree to a lay off in order to help the business to survive. If you are going to do that and you can afford it, please do take legal advice first.
Step by step process to see where you are
The overall objective needs to be to work out how to get back to profit. This means doing a weekly or monthly budget based on the new environment for your business. The issue of cash flow comes later.
The first issue is to establish what are your monthly sales going to be going forward? Not only will you have lost orders or customers but also the ones that you do keep could well have cash flow problems and so your trading terms may be extended.
The second stage is to establish your overheads and what can be reduced. For example, will your landlord allow a short-term rent reduction? Usually a sensible landlord will allow this for a short period as it is better than having empty premises. Business rates may be able to be reduced to nil in 20/21 if you qualify under the new UK Government business support rules.
I have discussed employees above. Start with reviewing the written contracts of employment you have in place and consider if you can do redundancies as well as asking your team to accept pay reductions or even lay offs if you need to close for a while.
You need to see what costs can be saved and work out if you can get the overheads to be less than sales. If you can’t then you really do have a problem.
Third – you need to look at cash flow. Can you raise money to put into the business and can you make a claim of the new Government grants available? This includes the £10,000 for small businesses that previously qualified for Small Business Rate Relief and £25,000 for those with a rateable value below £25,000.
You can defer some costs by talking to suppliers about make smaller or delayed payments. In my experience suppliers would rather have something smaller each week or month than nothing at all. You can talk to HM Revenue and Customs about a time to pay agreement as well in order to defer PAYE and VAT.
There is also a new UK Government backed Coronavirus loan scheme to be launched in weeks by the British Business Bank.
If all else fails
A Company or Individual Voluntary Arrangement may be possible. This stops creditors taking action and gives you 3 to 5 years to pay some money back and keeps the business going.
The only other solution is to close and liquidate. This does trigger the UK Government Redundancy Payment fund for employees who can then claim arrears of pay, notice pay, redundancy and unpaid holidays (subject to caps).
Administration may also be an option as a method to very quickly downsize a business into a smaller, more profitable form that is perhaps sold on to a new entity.
If you want some advice please email me firstname.lastname@example.org