Cash flow management once furlough ends

The furlough scheme has been supporting the salaries of approximately 7.5m (at an estimated cost c£80bn) workers during the Covid-19 pandemic, and has played a key role in preventing what could have been a catastrophic spike in unemployment levels. The scheme will continue to the end of October, however from August the support provided was reduced, and measures have been introduced to allow the scheme to be used more flexibly.

A gradual removal in lockdown restrictions has allowed many businesses to reopen, although often with a significantly lower capacity and therefore a lower turnover than prior to the pandemic. Many businesses will continue to operate at a significantly reduced level of profitability and therefore cash flow.  

The above factors combined with the furlough scheme coming to an end means that many businesses, particularly those in sectors subject to full or partial lockdown measures, will need to carefully manage their short and medium term cash flow. It is therefore vital that management decisions are informed by both short and medium term profitability and cash flow projections.

Management teams will need to quickly understand the extent to which cash flow can be sufficiently improved through tighter control on working capital – for example reducing payment terms with customers, extending credit terms with suppliers, and securing payment holidays on loan agreements.

Where improvements in working capital will not be sufficient, management teams will need to seek external finance. For many businesses, the most accessible funding has been the widely publicised CBILS and Bounce Back Loan Schemes. These schemes have provided low cost and often unsecured funding to thousands of SME’s.

It is important to note that the deadline for the submission of applications is 30 September (the deadline for funds to be approved has been extended to 30 November) and therefore businesses requiring funding will need to move quickly to obtain this funding.  

Businesses should consider other sources of funding, for example those businesses with an unencumbered sales ledger, or plant and machinery should consider asset based lending. Where the business has access to equity funding either through existing equity investors or business angel networks these options should also be considered.

The above are just some of the areas which should be considered as part of a short and medium term funding strategy. If you would like to discuss further, please contact Ian Waddingham, Corporate Finance Senior Manager or a member of the Corporate Finance team on 0161 5195050.