"Cash is King"... Time to review and restructure?

Regardless of your political leaning and your views on whether the lockdown in the England was introduced quickly (or indeed stringently) enough, there is general consensus that the unprecedented package of measures introduced by the Chancellor, Rishi Sunak, kept UK plc afloat during the first half of 2020.

The Coronavirus Business Interruption Loan Scheme (CBILS) and the ability for employers to temporarily furlough employees (so as to retain them in jobs if possible, rather than make them redundant) has been a lifeline to many businesses regardless of their industry sector.  The lifting of some restrictions on lockdown in England continues to gather pace.  This includes the introduction of the very popular ‘Eat out to Help Out’ scheme, where customers have their food and non-alcoholic bill ‘subsidised’ by up to £10.00 per person for dine in meals, which has provided a much-needed financial injection into the beleaguered food and beverage sector.

These initiatives – and particularly the CBILS and furlough schemes – have quite literally meant the difference between survival and closure for many businesses, big and small.  The furlough scheme was extended by the Chancellor so that it will come to an end on 31 October 2020.  As at 9 August 2020, there were still around 9.6 million employees on furlough from 1.2 million different employers in the United Kingdom. [source - https://www.statista.com/statistics/1116638/uk-number-of-people-on-furlough/ ].

It is estimated that the furlough scheme will have cost the Government around £80 billion by the time it comes to an end on 31 October 2020.

Whilst there are signs of some recovery and growth in the economy, we still find ourselves in a position where August will see a forecast contraction of 10% of GDP.

[Source -https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/910534/Forecomp_August_2020_new.pdf ]

This contraction could be even greater from the end of October onwards, at which time the £80 billion furlough lifeline will come to an end.

The importance of robust and prudent financial forecasting and credit control processes has never been more important for businesses.  The worst possible outcome would be for them to have benefitted from the CBILS and furlough schemes, only to find that once the latter comes to an end, they have insufficient cashflow to meet the salary demands.

If you are in any doubt about whether your business will be able to meet these demands on its cashflow, early engagement with professional advisors (bank, accountants, solicitors) is critical.  Whilst burying one’s head in the sand might seem superficially attractive, it will not address the problem and could limit significantly the options available – i.e. there may be no choice but to adopt a ‘terminal’ insolvency process, when even a matter of days or weeks earlier a ‘turnaround / restructuring’ insolvency process might still have been viable.

For more information about the options available to your organisation if you need to consider restructuring your current business model please contact Thomas Hall on 01242 248459 or email thomas.hall@bpe.co.uk or another member of the BPE Restructuring and Insolvency team via restructuring@bpe.co.uk.

Full details of the team and the ways we can support your business can be found at www.bpe.co.uk/restructure

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