CEO Fluidly
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Business faces a perfect storm this autumn

Fluidly CEO Caroline Plumb OBE outlines why autumnal challenges could exceed the threat posed by summer lockdown - and what accountants need to do to help.

18th Sep 2020
CEO Fluidly
Columnist
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Post-Covid conditions could create a perfect economic storm
iStock_Perfect storm_Elen11

A rare combination of meteorological phenomena that compound already testing conditions is described as a “perfect storm” – a synchronous event that inflicts maximum devastation.

The circumstances about to hit small and mid-sized businesses could justify use of the phrase. In the weeks ahead, owners could be left reeling at a time when thoughts of recovery were occupying their minds.

This is not to scaremonger, but a call to prepare to batten down hatches (again!), consider the likely impact on cashflow, and take appropriate action to get through the next few months.

Accountants may need support clients more now than they did at the height of Covid-19’s first wave.

It’s hard to imagine that a debilitating summer for businesses could get much worse as we enter the year’s darker months. Reopening shops and restaurants – albeit with new restrictions - brought a semblance of normality and light to the nation.

Coronavirus loans wind down

Let’s turn to the combination of economic impacts ahead. By now most businesses will have sought financial refuge by applying for the generous interest rates applied to pandemic-linked loans. At the end of September, the Coronavirus Business Interruption Loan Scheme (CBILS) is due to shut up shop.

By mid-August close to £14bn worth of loans had been approved for around 60,000 facilities, representing approximately half of the applications made. The Bounce Back Loan Scheme (BBLS) that followed in the wake of CBILS delivered a further £35.5bn into small business accounts via loans of up to £50,000 with 2.5% interest.

With more than 1.1m BBLS facilities approved, most eligible businesses will have exhausted that option and will now be hoping to trade out of trouble. And on a brighter note, companies that didn’t take the BBLS route have until November 4 to apply.

Further support?

Worse still, the coronavirus job retention scheme, which has distributed more than £35bn and covered more than nine million jobs so far, is also winding down. It will exist on a reduced basis until the end of October. But with cases rising, restrictions being tightened, and a full second wave of Covid-19 feared, it’s hard not to imagine a multitude of job losses that will leave businesses stretched. 

Quite what we can expect from the government in terms of continuity, remains unclear, but we can safely assume that many businesses in need of working capital funds will still be in that position during the autumn. Against that backdrop, finding the right funding options will be critical.

The government might merge elements of the existing Enterprise Finance Guarantee (EFG) and CBILS for unsecured lending; for other businesses invoice financing or asset-based lending might be the best options.

Rent suspensions and tax deferrals end

And then there is the end of the already extended commercial rent suspensions - also at the end of September. This coincides with the end of rent quarter day on the 29th of the month. Add in an estimated £30bn of VAT payments that were deferred and now need to be paid, plus 2019 corporation tax due on 1 October for any business with a December year-end and the cashflow consequences are stark.

Finally, we can throw in the possibility of a no-deal Brexit again. Fears returned to the markets this week with the pound falling against other major currencies. Despite the government’s typically ebullient rhetoric, the October deadline for a trade deal feels like the last thing anybody needs right now. If a deal is struck, however, it could at least inject some much-needed confidence.

We head towards Christmas with small businesses needing to gear up, restock and hire for a peak season. This is time for accountants to recognise the value of cashflow and financial advice and proactively contact clients to help them formulate a Plan B in case the economic conditions worsen.

During this pandemic, 65% of plans created in Fluidly’s Goal Planner tool focused on survival. We believe there are financial solutions, that if prepared and implemented soon, will see clients through. It’s why we added the ability to source pre-qualified funding options in minutes to our range of tools. The storm is brewing, but those who act now will see clients emerge safely on the other side.

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