SMEs in Survival Mode: How To Avoid Insolvency During And After COVID
It has been a very tough year for small and medium-sized businesses in the UK and globally. The majority of SMEs do not have large reserves of cash at their disposal; the impact of COVID on their businesses has significantly affected their cash flow. This can very quickly result in financial difficulties and eventually lead to insolvency. If you find yourself in this situation, you can contact insolvency practitioners in London for expert advice. However, here are some steps you can take before you reach that stage to give your business the best chance of survival.
- Be aware of all spending and costs in the business
The first step is assessing all ingoings and outgoings of the business. Look carefully at all the current costs your business has. Assess your budgets and identify where there is any slack to be cut to reduce spending. In this period where every cost needs to be accounted for and justified, it may be wise for the CEO to take the reins back on any spending decisions. Require every spend to be signed off by them so that they are acutely aware of every outgoing leaving the business. This knowledge is key in taking control of business costs and accurately determining which costs to cut.
- Reduce costs
Once you know which costs to cut, act on this information. Wherever possible, reduce your costs. It is likely your highest costs are office space and staffing. If you’re not locked into a long-term lease, look at cheaper alternatives you can use for office space. There may be a co-working space with much cheaper rates than your current set-up. Alternatively, if possible end your contract and have employees working from home until things settle more. This is currently a safer way of working and will significantly reduce costs, removing some pressure from your bottom line.
If you are tied into a fixed-term contract, speak to your landlord and see if you can negotiate on your terms. You could request discounted rent, a rent deferment where a payment plan is put in place, or a rent-free period. Your landlord has no obligation to agree to these, but they will not want to see your business become insolvent and may offer some concessions to help you out. The demand for office space has been greatly reduced due to the pandemic; they’ll likely want to keep you in place rather than having to find a new tenant in this uncertain market.
- Contact your suppliers
It has been a hard time for everyone during the pandemic. People are perhaps more understanding of financial issues than ever with everyone feeling the strain in one way or another. Once you’ve assessed your vital costs, reach out to those suppliers and discuss if there is a way to spread your payments. They are likely to be understanding and come up with a payment plan which works for you both. They won’t want to lose your business. If any contracts are up for renewal, negotiate reduced payments or extended payment terms.
- Chase your invoices
Ensure that you have received all of your outstanding payments. Chase any invoices that have not yet been paid. Break down larger projects and invoice by section rather than waiting until all of the work has been completed. This helps to keep money flowing through the business regularly and in this economy that works to your advantage, rather than waiting for larger payments less frequently.
- Use financial support schemes
Wherever you’re based, there should be various government support schemes to help SMEs. Research what is available to you and apply before the deadline. In the UK, the Coronavirus Job Retention Scheme has been extended until April 2021. This scheme helps businesses with staffing costs, paying 80% of a worker’s salary whilst they’re on furlough. The Coronavirus Business Interruption Loan Scheme helps small and medium-sized businesses access financial support up to 5 million pounds. It is available until March 2021. Keep an eye on whether any new support is offered, or if schemes are extended, as they are constantly changing.
In conclusion, keep a close eye on your company’s ingoings and outgoings. Tighten your spending where you can, setting strict budgets for employees to stick to, and having the CEO sign off on all spending. Reduce costs wherever possible. Ensure you have been paid for all of the work you have done, chasing those outstanding invoices until the money hits the business’s account. Take the government support that is available to you to keep you afloat and to support your employees. It is a difficult time for SMEs, but following the above tips will help to keep the cash flow running smoothly and ensure your business does not become insolvent during or after COVID.