While lockdown measures may have eased, their impact – plus those social distancing measures still in place – will continue to effect businesses across the UK for some time.
Mark Neath, director at financial experts Old Mill, says businesses owners need to start planning now for the impact on cash reserves and below has set out six key dates that businesses should be planning for over the next 12 months warning that we could see a number of insolvencies in March 2021 when VAT becomes due.
Neath says: “The main issue on 31st March is to do with VAT. Many businesses took advantage of the opportunity to defer the VAT payment that would have been due in the quarter April/May/June 2020 to help their cashflow. If their business was adversely affected by the lockdown, then that cash may have been used to cover unavoidable costs when they had reduced revenue coming in. The issue then is whether post-lockdown, their business recovers sufficiently quickly to restore the cash balance in time for March. If not, then we are likely to see a wave of business failures. The end of March is also a quarter day, so will coincide with rent being due for many.”
What issues have businesses faced during the pandemic?
Neath says: “It is impossible to generalise about the issues businesses have faced during the pandemic because it very much depends on what the business does. Many sectors have not been adversely affected at all while some sectors have actually benefited.
“Some businesses have been able to diversify their activities to offset lost income with new sources of revenue, but there have been sectors which have been badly hit – mainly those where the government’s rules have kept them closed for a long period and prevented earning any revenue.
“Some businesses have been able to diversify their activities to offset lost income with new sources of revenue, but there have been sectors which have been badly hit – mainly those where the government’s rules have kept them closed for a long period and prevented earning any revenue.”
“For many of these, particularly the hospitality sector for example, the restricted re-opening has not been much better because there are certain fixed costs of having a premises open, which aren’t reduced, whilst income is effectively capped by limits on occupancy of premises. A half-empty restaurant still needs all the lights on!
Some of the hardest hit businesses were those indirectly involved in the hospitality supply chain. Government support provided rates relief and grants to restaurants, but not to the businesses that supply their ingredients or drinks, who also saw their revenue switched off overnight.”
Neath says: “For those businesses that have been adversely affected, and this may be many more if there is an ongoing economic downturn, cash is the most important thing.
- Manage cash collection from customers closely
- Review and reduce unnecessary expenditure.
- Evaluate what level of costs your business can afford with the revenue being generated
“Sadly, this may mean some won’t be able to afford to keep on all of their staff. And, whilst it is essential that business owners protect their position to “weather the storm”, cutting back on costs and staff takes income out of other businesses, so this can have a knock-on effect depressing the economy further.
“The overall economy will continue to be hit while lockdown measures remain in place due to the fact that so many businesses are simply unable to reach their potential, in terms of income, due to the social distancing restrictions that are still in place. Fortunately, there are still many businesses that are doing well.”