Cash flow in the time of Corona virus


In these uncertain times few things are certain; so let go back to basics. All businesses need cash flow to survive whether they are multinational businesses or Internet start-ups. An inevitable consequence of the decision by the Governments of the World to minimise transmission of the virus COVID-19 by shutting down transport links and restricting social contact will be that demand for all but essential goods and services will fall away, and markedly so. With fixed costs remaining fixed the reduction in income and receipts suffered by businesses will see a rapid depletion of cash reserves and a corresponding requirement for businesses to maximise available cash flow.

Whilst these are early days and the government's plans on how to assist businesses to survive this threat to the economy are not yet fully articulated the following are a few examples of steps that can be taken to lessen the effect of a lack of liquidity.

1.If your business cannot be adjusted to the current short term demands you should consider postponing any conventional plans or projects for expansion acquisition or recruitment that contemplate enhanced expenditure.

2.Consider whether there are any areas of your business that could be easily adapted to mitigate the effect of the pandemic. For example where the hospitality industry is suffering due to a decline in patrons dining in a number of Restaurants are now offering a takeaway or delivery service.

3.Consider negotiating with 'establishment' creditors to "smooth out" spikes in expenditure like the payment of rent. Landlords may be amenable to varying the obligation to pay rent from a quarterly in advance to a basis that sees rent paid monthly in arrears.

4.Consider negotiating extended credit terms with trade creditors. Be careful however to act fairly and honestly as between creditors. Preferring certain creditors over others may in some circumstances have adverse consequences on those creditors who are considered to have received preferential treatment.

5.Consider confirming existing but underutilised credit facilities or applying for new credit facilities from Banks .This is prudent to ensure that additional funding can be introduced if required.

6.Be alive to central governments initiatives introduced to help businesses navigate the challenging economic environment created by the pandemic. The government has recently announced a HMRC tax deferment scheme, temporary suspension of business rates and loans partially guaranteed by the Bank of England. More schemes will undoubtedly be announced in the coming days. Where appropriate apply and participate in the schemes.

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