If you have a struggling business, don’t bury your head in the sand

Times are tough for many businesses our corporate For every food manufacturer and garden centre success story during lockdown, there are many companies particularly in the events and hospitality sectors, suffering pandemic sized blows. Simon Deans, B P Collins’ senior partner and corporate and commercial lawyer offers advice on what those struggling businesses can do to weather the storm.

1. Review the Government’s winter economy plan 
Look closely at the assistance available from the HMRC. Chancellor Rishi Sunak announced support for businesses as part of his Winter Economy Plan. The deadline to apply for all Coronavirus Loan Schemes ended on 30 November 2020.

In addition, businesses that have borrowed already using the 100 per cent guaranteed Bounce Back Loan Scheme, have been offered the option of more time and flexibility for their repayments. Under this “pay as you grow” flexible repayment system, loans can be extended from six to ten years. Businesses that are struggling can choose to make interest-only payments, and those in trouble can apply for a payment holiday of up to six months. 

The government is also allowing Coronavirus Business Interruption Loan Scheme lenders to extend the length of loans from a maximum of six to ten years, if it will help businesses to repay the loan. For those who are self-employed and continue to trade but are facing a reduction in demand over the coming months, the Self Employed Income Support Scheme taxable grant has been extended with a payment that is cover-ing three months’ of profits from 2020 to the end of January 2021. This is worth 20% of average monthly profits, up to a total of £1,875. Eligible people will be able to apply for a second grant to cover February to the end of April. HMRC has said that the credit ratings of businesses will not be affected. Also, up to 500,000 businesses that deferred their VAT bills have been given the option of a New Payment Scheme, which enables them to pay back in smaller interest-free instalments if they need to do so during the 2021-22 financial year. 

The Chancellor’s Spending Review announced on 25 November also included a new National Infrastructure Bank, long-term funding for innovation, and a plan for creating new jobs. We will keep clients up to date on what could be available for them over the coming months.

2. Cut costs 
It may be an obvious point but look at where you can save costs, while your business weathers the storm.  This could be through negotiating reduced or deferred rent, equipment or taking difficult decisions about staff. It’s important to note that the government is running a Job Support Scheme until the end of March 2021, which supports “viable jobs” by subsidising the salaries of employees who can work at least one third of their usual hours. 

Running alongside this is a job retention bonus that is available to employers who had employees on furlough; and are still employed, but not under notice as at 31 January 2021. Employers can apply for the bonus worth £1000 per employee from 15th February until 31 March 2021.

3. Negotiate
Now is the time to have an open conversation with your customers and suppliers about how your payments could be adjusted. Can suppliers extend your credit and can customers pay more quickly to help your cash flow. Will the bank adjust loan and overdraft terms to help? Think of these discussions from the perspective of the other party. It is probably better that they receive some payment rather than nothing at all; and reputationally, do they really want to be known as helping to run your otherwise viable business into the ground during the pandemic? The answer is probably not, so use this to your advantage when having these necessary discussions.

4. Adapt
You can borrow money to keep afloat during tougher times, but before you do, it’s important to ask yourself if your business is genuinely viable, now and into the uncertain future.
It’s true in any climate, and even more so in a challenging economy, that you should offer what the customer needs, within the realms of what’s permitted. A recession doesn’t mean that people aren’t spending any money and indeed the Government and Bank of England fiscal stimuli are designed to keep us spending as consumers. It may mean they’re spending less though.  So if they’re spending money on something – what are they spending it on and can you pivot your business?

5. Don't be an ostrich
It may be tempting to ignore the warning signs that your business is struggling. There tends to be a stigma to admitting a business is in trouble and a desire to save money by avoiding the cost of advisers. But now is the time to seek the advice of professionals. In particular, insolvency practitioners and corporate recovery specialists can be extremely helpful when your business is under pressure. There could be scope to restructure your business and its finances or if you can’t save all of it, they may be able to help you to save at least part of it.

For further information or advice please get in touch with our corporate and commercial team on 01753 889995 or email enquiries@bpcollins.co.uk.