Figures from the Office for National Statistics reveal half of UK businesses surveyed are concerned that they will run out of cash in less than six months.
According to an ONS of 5,000 firms, 44% of firms that responded said their reserves would last less than six months. Over 4% reported having no reserves at all, with VAT deferrals, business rates holidays and state-backed loan schemes insufficient to prop up every business.
The ONS figures also showed that nine in ten businesses that have temporarily ceased trading have applied for temporary support under the Government’s corona virus jobs retention scheme, which is paying the wages of more than seven million workers.
The first quarter of 2020 saw the spread of COVID-19, as ‘black swan’ events go, this will take some beating, a global health and cash-flow crisis combined with unprecedented challenges. Businesses around the world of every size, in every sector are struggling to preserve cash and manage their ‘burn rate’. The effect of cash is real, immediate and, if mismanaged or not managed, it is very unforgiving.
The suspension of business activity has crystallised the importance of cash flow and financial planning above all else. With uncertainty over when demand returns to normal, even firms in good financial shape may not be immune in the months to come, depending on how the situation progresses. However, this is an opportunity as much as a challenge to adopt more efficient and innovative business practices and it’s important we do not lose sight of that.
A shift in focus
A decisive shift from growth to strengthening balance sheets is required as the Government’s measures only offer short-term financial support.
A recent article by McKinsey highlighted this need:
“Particularly in times of crisis, financial-planning must closely monitor the company’s liquidity and earnings performance and any changes in the market. In our experience, senior leaders can fall into the trap of wanting to track multiple key performance indicators (KPIs) when only about ten variables matter”. (McKinsey: Planning for Uncertainty: performance management under COVID-19).
Focusing on the fundamentals is crucial for survival preparing financial forecasts is not just an exercise exclusive to large corporations, it is an essential step for any business, especially in these unprecedented times. Businesses that didn’t have a robust financial plan in place before the crisis will need to develop one in order to access larger lending under the Government’s Coronavirus Business Interruption Loan Scheme (CBILS).
Simon Paul from Newable heads up the London Growth Hub, managing a team of advisers providing advice and support to almost 1,000 businesses across the capital struggling due to COVID-19.
Reflecting on businesses supported he said:
Some businesses have managed their finances in a manner that will enable them to survive, regardless of any Government support. For the vast majority though, failure to retain a minimum of three months reserves, means that they are now fighting for survival.
If you are worried about your cash position or you’re uncertain of the impact COVID-19 will have on your business, then our Business Advice Team can help you prepare financial forecasts as soon as possible, equipping you with essential facts and figures so you can make critical business decisions quickly and access available financial support being introduced by the Government including CBILS) and the Business Bounce Back Loan Scheme (BBLs).
Newable’s core mission is to support businesses to thrive and grow, a journey which started over 35 years ago, we remain steadfast in our commitment in good times and bad. Our expertise on the ground during COVID-19 means we understand the challenges SMEs face and can deliver innovative solutions to address these challenges.
Newable helped establish a Business Support Helpline backed by the UK Government to offer free, impartial business support and advice to London based businesses: https://www.growthhub.london/get-support/.
Alongside the support helpline is a nine month programme focused on business resilience to help and support under-served entrepreneurs from lower-income areas. The ‘Business Resilience Service’ is funded J.P. Morgan and managed by Newable’s Social Impact Team which supports the capital’s most vulnerable businesses to survive and thrive and local communities to diversify and prosper.