Preserving client cash flows becomes accountants’ top priority

Preserving client cash flows becomes accountants’ top priority

Sales have plummeted for many businesses, meaning accountants need to be looking at their clients’ cash on hand

Preserving client cash flows becomes accountants’ top priority

Accountants are growing increasingly concerned about clients’ short-term cash flows.

“The first thing that we’re being sent around to look at is the short-term cash flow,” says David Fleming, managing director of corporate restructuring and debt advisory at Duff & Phelps.

“Our focus is getting a grip on the short-term cash flow. And then looking around for the options we have to effectively preserve cash in these unknown times because their revenues have fallen off a cliff. For businesses, the key point is to understand how much cash they’ve got and how long will that last.”

Businesses have also been contacting their accountants asking what can be done to shore up their finances, he says.

“The COVID business interruption loan scheme, which the government has announced… [businesses] are interested in understanding, how can they get access to that? What are the terms of that funding that have been provided to them? They’re also very keen around the HMRC support that has been that gives them an immediate cash boost into their cash flow,” says Fleming.

The government first introduced support measures for businesses during the 2020 budget speech on March 11. However, as stricter social distancing measures became needed, the government has taken further steps to support the economy, even taking the extraordinary measure of paying up to 80 percent of an employee’s wage.

For Fleming, the VAT deferment has probably the biggest immediate impact on helping businesses survive. “[The government] has taken a great step which is hugely positive. The VAT bill is one of the big bills for SMEs and to be able to preserve that cash within your business is a real thumbs up.”

The government has deferred VAT payment from March 20 until June 30. Deferred VAT is then to be paid by the end of the 2020-2021 tax year.

Further measures include:

  • a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England
  • small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
  • the HMRC Time To Pay Scheme

While several of the government’s COVID-19 initiatives are given in the form of grants or deferments, loans are also a major part of the response and Stuart Evans, commercial law partner at BLM says the medium-term viability of a business needs to be considered as well.

“There are financial infusions coming in, which obviously are to be welcomed. But, it’s not just a payment with no consequences. These are loans that are being pushed into businesses. Unless it’s going to be a very anodyne system, whereby its almost like a student loan, have you got the resources to meet these loans?”

Currently under the ‘Coronavirus Business Interruption Loan Scheme’, the government will cover the first 12 months of interest payments for SMEs and is guaranteeing 80 percent of each loan.

“Cash is essential to the health of a business and obviously an infusion from the government is going to help,” says Evans. “Now the question becomes, well, is [this cash] going to be enough to enable us to put together some sort of plan or strategy in circumstances where, who knows what’s going to happen in three months or six months down the line?”

The Prime Minister has given the timeframe of 12 weeks to ‘turn the tide’. But given that COVID-19 is a ‘once in a century’ crisis, no one knows the answer for certain, making it difficult to predict future finances.

For the immediate and the short term, Fleming says accountant’s need to be more creative in how to address their clients concerns and to be proactive in reaching out to their client’s creditors. “

We had always said to the business ‘you get in contact with the landlord and see where you get to and we’ll we will only come in if we feel we need to get involved.’ Now, we are being much more proactive. We’re moving from not just speaking to the landlord, but we’re going to be speaking to the creditors as well, where we think the business may need payment plans and support.

“So I think in the restructuring world at the moment, it’s definitely thinking on your feet and trying to come up with ways to help the small businesses, buy time whilst we get a hold of either the government support or government cash. It is unprecedent times and we’re here to help the clients to find as creative ways as possible to make sure they survive in the short to medium term whilst the coronavirus hits and hopefully get them through to the other side of COVID-19.”

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