FUNDING
Accountants

Cashflow & Covid-19: Preparing clients for the challenges ahead

Missed our webinar? Catch up on the key points our speakers raised in the summary below, or watch the full recording here. 

This webinar was recorded on March 18th, since then the government has launched further initiatives to support small businesses during this difficult time. For more information, visit gov.uk.

Chair:

  • Caroline Plumb OBE – CEO, Fluidly

Guest speakers:

  • Adam Clements – MD, Freshminds Recruitment and Consulting Firm
  • Jenny Marley – Associate in Employment Team, Ashfords Law Firm
  • Jonathan Bareham – Director, Raeden Accountancy Firm

At Fluidly, our mission is to help business owners sleep better at night, by helping them manage their cashflow better.

Today we’ll be discussing how businesses can generate cash in this difficult time using the two main levers: revenue and cost reduction. We’ll also be asking more general questions around how small business owners and their accountants can prepare for the challenges ahead.

Adam, what’s it like running a business at the moment and what support would you like from your accountant?

Adam Clements:

We’re all working remotely which is challenging for a business like ours. Demand is lessening for our services and every plan we make has been made redundant the next day.

It’s not great in terms of sleeping!

I want my accountant to be proactive and communicate. Normally we worry about the topline, but it’s too difficult to worry about that at the moment when there are so many unknowns. So we’re looking at funding options, cashflow and our debtors and creditors.

From accountants, I’m looking for real expertise. What are the new government loans? What do they mean? What should we be preparing right now to access that funding?

Accountants should contact clients to help them get on the front foot as far as possible.

Jonathan, how are you supporting your clients?

Jonathan Bareham:

The main concern is cashflow. Our clients are looking at the months ahead and much of their work has been cancelled.

How can you maintain and run your business without money coming in? The answer is you have to know where you are today, before you can start thinking about where you might be in another scenario. We’re having discussions with clients at the moment to make sure they’re using tools like Fluidly, so they’re in a good position and everything is up to date.

What are your top tips for working remotely?

Jonathan Bareham:

Maintaining communication and team-feel is key. We use Slack, Zoom and Loom. We have 2 Zoom calls set up a day with the full team. We talk about work, but there’s also a lot of general chat and laughing. It’s nice to keep that bonding together, it can feel quite isolating when you are apart. We have the technology in place, it’s the human side we want to focus on.

Jenny Marley:

We’re inundated with work at the moment. We’re keeping in touch using Microsoft Teams and setting up morning calls over video where possible.

It’s really a case of making sure that technology is ok. If anyone has any technological issues they’re reporting them back so IT can support where possible.

How are you managing your costs at the moment?

Adam Clements:

We’ve had to put a hold on recruitment for the time being. We looked at our contractors and minimised any costs that weren’t adding immediate value in terms of revenue.

We also looked at our outgoings, especially suppliers that might be happy to wait longer for payment.

Now we’re not in the office there are some small savings to be made on office costs, and we’ve got some bigger discussions ahead around the rental of our office space and potentially on headcount.

What are your thoughts on the government schemes around cash grants and business rates?

Adam Clements:

Cash grants are great in theory, but the devil is in the detail. Banks are swamped with questions and potential applications. They’re not in a position to process the amount of applications they’re going to get. The British Business Bank is saying it’ll take weeks not days.

Will there be certainty for us when we need it? Small businesses will need to make decisions quite quickly.

Our analysis suggests one in five businesses are in their overdraft. Most businesses in the face of significant revenue cuts will have weeks to trade. Jonathan, how are you advising your clients?

Jonathan Bareham:

The government has proposed a huge loan scheme, but it is still debt funding and it comes down to eligibility criteria. The government is backing the lender, not you as the borrower. All the liability still sits with the borrower.

If your business has security, you won’t get this backing. You’ll just get a bog-standard loan. If you don’t have security you may be eligible for government backing, but there’s no guarantee.

It’s great that the government is doing this, but it feels like there needs to be a bit more. It’s still quite a narrow niche of businesses that are eligible for this.

Thinking of the clients we work with, it’s not enough. It’s not the solution business owners want it to be when they see the headline.

Caroline Plumb:

What’s frightening is that this 330bn of loans is coming from a scheme that has only managed to do 3bn of loans since 2009 – it’s building on an existing scheme. That scheme is a failure, so it’s hard to see how the 330bn is going to mobilise when it needs to meet the original lender eligibility criteria, and there’s been no evidence that any of the lenders have changed their score cards.

Should businesses still be paying HMRC?

Jonathan Bareham:

There’s a new HMRC helpline and I’d encourage all business owners to get in touch if you have concerns. There’s a promise to be more lenient on payment arrangements, to potentially remove penalties and stop the HMRC automated debt collections.

People should keep in touch with HMRC. Don’t ignore them, they won’t be lenient by default, it does require that communication.

If you had a client with an imminent VAT bill, would you tell them to pay it now?

Jonathan Bareham:

If it’s imminent, wait until closer to the time. A lot can change in a short period.

If it’s due now, call the helpline and see what they can offer, get yourself a bit of a break, then hopefully if something else comes in you can go back to them and take advantage of whatever it is.

Also, talk to landlords. A lot of people are getting success around rent breaks. Innovation and collaboration works. If you’ve got problems, speak to people. Most people would prefer a percentage of something rather than nothing.

Jenny, it would be great to talk about the situation with sickness and employees. Talk to us about statutory sick pay.

Jenny Marley:

The budget in March 2020 announced changes to sick pay provisions. Rather than having to wait three days to get statutory sick pay, they’ll be applicable from day one. Where companies have 250 or less employees, as of 28th Feb 2020, they will reimburse those businesses for up to two weeks per employee on statutory sick pay.

How that will work in practice hasn’t been announced. I think it’ll be a case of the company having to front the money, then reclaim it back at some point.

However, although the government has expanded measures to increase the number of people who can get it, statutory sick pay is really low, it’s about £95 a week. If you contrast that to most people’s earnings it doesn’t go that far.

Can employers claim statutory sick pay as a percentage rebate off what they’re already paying sick employers?

Jenny Marley:

Normally, your statutory sick pay is included in your company sick pay. So the rebate that you get goes towards your company’s sick pay level.

If people are self isolating but not unwell, then employers should allow them to work from home and pay them at their full rate of pay.

Can employers force employees to go home and take the sick pay if they feel they need to?

Employers have a duty to protect the health and safety of their workforce and others that may come into contact and be affected. So, if someone comes into work who seems to be unwell, you can send them home and the statutory sick pay provisions apply.

If people say they’re not sick and you’re sending them home – whether that’s because they’re high risk, or you’re closing the workplace because someone at work has had the symptoms – then you have to pay them at the full rate of pay.

Some employers will be in a position where they can’t offer work because their premises are shut or there’s less demand. What are the laws around that? What can employers do to give some flexibility to their payroll costs?

Jenny Marley:

It’s really limited. There are statutory provisions in relation to lay off and short term working, where you close temporarily and you effectively suspend those staff. Or you provide staff with a reduced rate of work for a reduced rate of pay. But technically, unless you have a layoff or short time working clause in your contract, you can’t rely on it. A lot of contracts probably won’t have it because it’s rare.

So most people are in a position where they have got to come to an agreement with staff. Talk to staff and tell them what the options are. Tell them you don’t want to make redundancies but you can’t afford to pay or you don’t have the work. See if they will agree to different measures.

You don’t have a contractual right to suspend staff without an agreement and with no pay, that’s a technical breach of contract and staff can bring claims of unlawful deduction of wages.

What about smaller employers who don’t have a union in place. How do you recommend that those employers have those conversations with their teams without creating potential risk around dismissals or employment law violations?

Jenny Marley:

Be as open as possible about it and see what you can agree on. It might be that some employees are willing to take a period of unpaid leave.

Alternatively, if you have no work for someone over the next three months, you can spread their nine month salary over twelve months.

Jonathan Bareham:

With the businesses we work with, there’s a desire for people to equalise. For everyone to lose out a little rather than a few people to lose everything. It’s good to communicate and give people options.

What is IR35 and how do you deal with it? How will it affect businesses?

Adam Clements:

Under this legislation, clients would have to make the determination as to whether a piece of work or a role fell inside IR35. Whereas previously that responsibility sat with the contractor.

The suspension is the one piece of good news we’ve had over the past few months.

What are the key things businesses should be doing around their cashflow right now?

Adam Clements:

Firstly, tightening controls. We’re looking daily at what’s gone in and what’s gone out, our financial controller is all over that every morning. We’re making sure we understand where we are – Fluidly aids that greatly.

Secondly, it’s about forecasting. We’re looking at our suppliers and our outstanding invoices and deciding which are most urgent.

From a credit control perspective, we’re making sure we’re talking to clients and emphasising that we need invoices to be paid on time. We’re also making sure our processes and admin are spot on so we’re not creating any delays ourselves.

Longer term, we’re looking at big payments. What can we do around HMRC, PAYE and rent.

We’re trying to make sure we’re asking every question and pursuing every opportunity to spread our outgoings as much as possible. It’s about doing lots of little things.

Jonathan Bareham:

I think the key thing is understanding cashflow. For a lot of smaller businesses there’s historically a focus on sales and profit rather than cash.

Understanding cashflow, how it works and what those levers are, can help you get more income in, improve your margins, reduce costs and manage payments.  It’s about knowing where you are and using a tool like Fluidly to see where you’re going and plan different scenarios. Then you can begin to understand what the hard lines are in the decisions you’re making.

Some businesses might find there are ways to work where you don’t have to make as many cuts as you think you do. But you can’t get there until you have the information in front of you.

Fluidly has added a scenario planner into our platform that allows you and your clients to see how a fall in revenue and a reduction in costs will impact your cashflow forecast. You can also model the effect of loans on cashflow. Our accountant partners can provide this service free of charge to their clients, with Fluidly Starter. 

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