Many business owners are questioning what steps they can take to protect their SME from the difficult months ahead. Our Finance Directors have encountered a number of difficult economic cycles. We sat down with Pilot Fish Managing Director, Richard Jones to ask what practical steps business owners can take now.
These are unprecedented times that need swift and decisive action where possible. A key difference with this crisis to past economic crises is that we are all in it together and are all likely to be impacted. This means we are less likely to be criticised or frowned upon for taking the actions needed.
The priority has to be cash retention and ensuring that your business has sufficient funds for what could be an extended disruption to trade.
Look at all discretionary spend and if possible, stop all immediately.
Is your marketing spend still relevant or needed? Has the market changed so much that you now need to stop marketing or change the focus of the marketing message?
Are you about to take on a business development project like an IT project? Ask if this is still something you want to proceed with at this time and if so, will your supplier offer better terms? You may find that they would rather retain the work with a different payment plan rather than lose it altogether.
Keep an eye on government announcements. Do you qualify for any of the government support schemes? Are there grants available to you that you should be claiming?
Assume the worst case and get the advice you need to know what your options are. Check what terms your staff are on and if necessary, what are your options for sending staff home with no pay if that becomes needed.
Make sure you know who your key suppliers are, your landlord and key partners. You may need to contact them to ask for help with payments or to tell them payments may be delayed. Keeping an open channel of communication is key.
Understand your cashflow projections and the impact of severe downturn in revenues. Know how long you can last and how much you might need from extra finance facilities to see you through. Speak to your finance advisor or speak to your bank about your options. It would be prudent to get additional facilities agreed as quickly as possible, even if it turns out you don’t need them. Don’t leave it until you really need the cash as that may prove to be too late.
This will depend on your business and the type of revenue you normally expect. If you have contractual revenue streams and feel your customers are not impacted and will continue to pay then you may feel there is no need to reduce costs. For many this will not be the case. Most businesses will want to protect their staff and retain them for the long term, but cashflow concerns could override all and cost reduction could be unavoidable.
The most appropriate cashflow solution is very much business and circumstance specific. However, we suspect that one overriding requirement will be to demonstrate to a lender that your issues are short term, you have a plan to mitigate and that when this is over your business will be able to recover and repay the debt.
So, having a sound plan and strategy ready is vital. We do expect lenders to continue lending but they will be more cautious and likely to take a little longer to make their decision. For example, a popular solution for cashflow management is Invoice Discounting. for this to work, lenders will check the credit worthiness of your customer. if they are perceived to be at risk then this solution may not work however, if it is just a timing issue then this could be the perfect solution.
Revolving Credit Facilities are likely to be a very popular solution. They work like an overdraft; you only pay interest on what you borrow and can repay whenever you like. These can be secured or unsecured. The size of the facility required will determine if security is needed.
There are dozens of products and hundreds of lenders. Speak to an advisor to ensure you obtain the most appropriate solution for your needs.
If you currently have debt in your business, for example with a high street bank, get in touch straight away even if you don’t have an immediate issue. Re-establish who your contact is and find out what options are available to you should you need them. Otherwise, contact an established business finance advisor, such as Pilot Fish for discuss your options.