As a business owner, director or manager 22 months into a global pandemic, you will by now be very well aware that thinking about cash flow conservation isn’t just in the court of your accountant, FD or accounts team; it is about self preservation and keeping the doors of your business open.
The Covid-19 pandemic just presents you with one certainty – that there are no certainties!
We do not know the impact that changing seasons and new variants will have on our business until they ‘happen’ to us – or what direct impact they will have on our customers or suppliers – which in turn of course impacts you as well.
Cash flow conservation is not a new concept – plenty of old tricks like chasing your receivables, negotiating your payables, cost cutting to trim the excess from your business costs etc.
But this pandemic and its uncertainties have put an additional urgency on ensuring you preserve a level of cash within the business where possible – for whatever is around the next corner, and one certainty is that we are all heading to another corner!
For example, you probably couldn’t just roll out last year’s budget / cash flow plans again for 2022 – did they factor in staff shortages in many sectors, the global supply chain crisis and HGV/delivery driver shortages in the UK to name just a few factors now on your radar?
So what could you consider to help you to conserve a level of cash within the business while you still have overheads, delays to banking receivables and expenses related to the business as you adjust or increase your activities to meet the challenges of the times?
For some people this may be just a case of finding out what is available to them in terms of finance products and tools – for others who might have always previously managed their business without the need of finance it might be a bitter pill to swallow, or a ‘last resort’ even.
Our very recent experience shows us that cash flow is the life blood of all of the businesses that we are dealing with, and maintaining a level to get you through this pandemic, or having a sufficient level to enable you to expand your activities and grow, is worth sacrificing a small amount of your margin to cover the cost of financing your business.
As you look at a cash flow forecast for your business this new year, factor in the tools that might be able to help you to conserve your cash flow and spread the cost of all of your outgoings over the months and years ahead; the same tools can also regulate your income to meet outgoings and opportunities as you have them.
We wanted to provide some examples of commercial finance products that can help your business to conserve cash flow and navigate out of the current situation.
Several of these are available until June 30th 2022 under the Government’s Recovery Loan Scheme (RLS) for eligible companies, alongside RLS business term loans, so please talk to us today about the benefits this could provide to your business.
Commercial Property Refinance
Your business may have commercial property that you own that has an outstanding mortgage on, or is unencumbered with no debt outstanding on it. In short you may have ‘equity’ in your property.
Commercial property for trading businesses will commonly be ‘owner-occupier’, the premises that they operate from; but some businesses also own and lease out commercial property that other companies operate from – ‘commercial investment’ property.
Refinancing commercial property could be used to conserve cash flow in more than one sense:
- Refinancing your existing mortgage onto a new deal could improve the rate of interest that you pay (reducing outgoings) or it could offer you fixed rate protection for an agreed period (limiting your costs for that agreed period)
- Refinancing commercial property to raise additional funds for your business is doing so over an extended period (commonly 15 – 25 year terms) and often at a significantly improved interest rate to those available on short term business loans, due to the security that the lender has in your property
We work with lenders who can also consider residential and BTL property as security for loans for business purposes. This is not suitable or viable for everyone (we and our lender partners operate a policy of responsible lending when it comes to residential properties), but if it was it could significantly improve your cash flow profile over a short term unsecured loan.
Receivables can Regulate your Cash Flow – Invoice Finance
Invoice Finance may not be the most suitable product for you in every part of the economic cycle – but think of it another way in trading out of the Covid-19 pandemic: what other financial facility will pay you for most of the work that you have completed just a few days after you have completed it, when your customers won’t be settling anything with you for another 60 to 90 days?
Without that immediate cash flow you will have to cover the cost of wages, contractors, overheads, suppliers – and then if you have the opportunity to take on more work or another project, do you have the cash flow to do that now or will it have to wait until your customers settles in the future?
We see this as the clearest demonstration of the ends justifying the cost of the means – many businesses won’t be able to manage without these facilities in the current economic climate – and we consider Invoice Finance will likely be one of the best cash flow conservation tools available to companies.
Trade Finance
Depending on the nature of their business, companies will either buy raw materials that they manufacture or assemble to create finished and saleable goods, or they will purchase ‘finished goods’ from a manufacturer or supplier – packaged and ready for delivery to their customers.
Trade Finance can be with UK based companies as well as overseas – and if it is from overseas, then Trade Finance lenders are also commonly experts in FX as well.
Your business can improve prices and terms from having the backing of a trade facility and being able to pay earlier, and Trade Finance facilities can be flexible to accommodate deposits if required on order and other costs including import VAT and shipping if these are applicable to you.
In the current environment companies need to conserve cash within the business as working capital can become strained without much notice. Funding the acquisition of goods or materials that are either pre-sold or to provide you with stock leaves crucial cash in the business to cover overheads and unexpected demands on the company.
Short Term VAT Loans
One quarter’s VAT bill was able to be deferred to March 2021 under an HMRC scheme, for bills that fell due between 20 March and 30 June 2020 at the start of the pandemic. Most firms then spread the cost of that repayment over the following 2021/22 tax year.
HM Treasury recognised that you need to conserve cash flow in your business, and not have to settle that whole quarter in one payment – but how does that help you with every other subsequent quarterly VAT bill that you face?
We have a lenders offering 12 week loans to help to settle some or all of your VAT bill – you can repay weekly or monthly as suits you best – but the big win for you here is conserving cash by spreading the payments and keeping some liquidity for whatever might come next.
Once set up for one quarter’s bill, the facility can be easily rolled when the next bill arrives – meaning that you don’t have to go through the same level of funding application each time.
Lease or HP Over Buying For Cash?
None of us are going to trade out of this environment by standing still – but when you are looking at new or replacement vehicles for your business, you should conserve cash and use smart finance.
We work with expert partners who can not only source cars and commercial vehicles, but who can source the most suitable Lease or Hire Purchase (HP) deal for your company.
Whether you are looking for New or Used vehicles, a single vehicle or entire fleet – using the right finance for your company in this environment is the smart choice. Conserving cash within your business right now makes sense – none of us know what is around the next corner or when we will need a cash buffer.
Tax efficient, AND better for the environment?? There are a range of CO2 emissions bands, and your business can benefit from an increased offset against profit the lower the CO2 output of your business vehicles. We recommend that you take the advice of your accountant to understand the full benefits available to your company.
I’m sure that you can understand therefore that we have seen a shift away from diesel cars being commonly used for business – we have seen great interest in hybrid and electric models in the last year, and yes, Tesla is very much on the scene as a business car!
Asset Refinance
Your business may have hard / soft assets, or stock, that is unencumbered or with significant equity, that you might consider putting to work to generate much needed cash flow for your business at this time.
We work with Asset Based Lenders who our clients use to access cash that they already have but that is locked up in the existing assets of the business.
If you are planning your budget and cash flow, why not talk to us about how commercial finance products – some that you may not even have considered – could help you to plan your way through 2022 and beyond.
Mark Grant, January 2022.
