11 January 2021

Not only has it been an eventful 12 months for many businesses, 2021’s economic outlook is still uncertain as the Government continues to introduce measures to stem the pandemic. Of course, every business is different with its unique set of opportunities and challenges.  For some, plans are in place to accelerate and manage growth; for others the focus has been purely on survival.

As Winter beds in, and with Brexit unfolding, strengthening cash flow and cash reserves will give businesses a firmer footing for whatever lies ahead.

With that in mind, accountancy and business advisers – Shipleys LLP – and specialists in the provision of part-time finance teams – YRH Finance Team – have pooled their collective wisdom and tips in this article.

Despite the uncertainty there are many things businesses can be doing right now to strengthen cash flow. To begin with, here are some tips from YRH Finance Team.

Strengthening cash flow

Improve your credit control approach

Have a mindset of being paid by your customers on time, every time and wrap a robust process around credit control so you’re not exposing yourself to the risk of bad debt over the coming months whilst optimising your cash flow. Remember credit control isn’t just about chasing payment, it’s the whole process from agreeing terms up front and credit checking customers, right through to invoicing promptly, offering different payment options, following up and, when required, escalating collection. Don’t forget to regularly review whether customers have earned the right for you to offer them payment terms.

Keep a watchful eye on your margins

This is important in every business, it’s easy for seemingly small costs to erode margins, but it’s especially important if you’re a service business. Measure the revenue (and profit) each of your billable people is generating for you – make sure everyone in the team is contributing a profit. If you start to lose clients, it’s easy to hang your hopes on new business and keep too much capacity in the business which will eat away at your profits and your cash. Be mindful, be realistic and make decisions to address over-capacity quickly. You’ll be able to find people when you need them when that new business really does arrive.

Manage your stock holdings

It’s easy for stock to get out of control, especially in times like now when possible reducing demand and pipeline intelligence doesn’t make its way into your procurement process. You need to keep a watchful eye, reviewing your re-order levels and making sure your purchasing people have visibility of your sales forecasts. If you are over-stocked, and demand is falling then generating some quick cash will all help. Conversely, if you’re selling more (e.g. PPE) then re-examining your re-order levels and your key suppliers gives you a chance to negotiate by consolidating orders.

Manage your overall cost base

Every cost has to earn its keep, more so now than ever. Take some time to review everything you’re buying in your business and aim to cut all non-essential or redundant costs. If your turnover is reducing a really quick way to check your cost base is to look back to a time when you were growing and you grew into your current or projected revenue – when we’re growing we nearly always invest behind the growth – when we’re shrinking we tend to cut behind the shrinking.

Analyse your marketing activities, channels and spend

Evaluate which channels find you the right clients at the right cost of acquisition and which channels just cost you money with no return? If you don’t know the answer to this you need get that clarity and start to know where you get the biggest bang for your marketing buck and where you’re wasting your money. Also, review your sales funnel and where there may be an issue or bottleneck. It may be your team are great at booking sales meetings but not so great at converting them (or vice versa) – it will tell you where you can press a lever and wring every last bit of juice out of your pipeline.

Replenishing cash reserves – making the most of Government support

As well as careful management of your costs, there is currently considerable financial support available to replenish your cash reserves at this difficult time. Here’s an overview from the Shipleys LLP team and you can also find more insights here.

Government grants

The Coronavirus Job Retention Scheme has been extended till 31 March 2021. It will operate as the previous scheme did, with businesses affected by Coronavirus restrictions being paid upfront to cover wages costs. The level of the grant will revert to the amount available under the Scheme in August.  This means the Government will pay 80% of wages up to a cap of £2,500. Employers will pay employer National Insurance Contributions (NICs) and pension contributions only for the hours the employee does not work.

In addition, further National and Local Restriction Support grants are being released through Local Authorities.  These are largely based on the rateable value of the business premises and there are different grants depending on whether a business is open or closed under the current restrictions.

Government loans

Consider one of the Government-backed loans to provide the short-term cash you need.  The Bounce Back Loans and Coronavirus Business Interruption Loan Scheme have all extended their application closing date to 31 March 2021.  If you have already taken out a loan but need further finance, do get in touch.

Be more tax efficient with your purchases to ease cash flow

Allowances for purchases

Make the most of your Annual Investment Allowance (AIA) when it comes to equipment purchases. You can deduct the full value of an item that qualifies for the AIA from your profits before tax. The allowance is £1,000,000 and this cap has been extended to cover purchases until 1 January 2022.  Businesses can also make the most of capital allowances including the structures and buildings allowance to help with any costs of construction, renovation or conversion costs on their premises. There’s an integral features allowance for lighting systems and air conditioning systems etc.

If you do need to invest in equipment but want more control over outgoings and cash flow short-term, also consider leasing.

Tax reliefs for innovation

Small and medium sized businesses can claim up to 230% relief on their corporation tax for any money they spend on a Research & Development (R&D) project. This means the company will get full tax relief for the cost of the R&D project, and will also receive an additional 130% corporation tax deduction. Even those companies making a loss as a result of their R&D programme can receive a repayable corporation tax credit for up to 33% of the project’s total cost.

R&D tax credits are not just for the development of theoretical research and patentable or ‘lab coat’ produced products. The qualification criteria for them is much, much broader.

A business that investigates innovative ways to increase efficiency, improve quality or generate new or improved products or services may qualify for the scheme. It’s not surprising that in recent years, more industries including IT, Communications, Construction and Financial Services have been benefitting from the support.

Can we help?

Whatever the circumstances you find your business in, know that you’re not alone. As part of our commitment to supporting SMEs through the months ahead both YRH Finance Team and Shipleys are offering a free 45 minute call with one of their team. Ask us as many questions as you like, we’re happy to help.

Contact

YRH Finance Team – email Erica Williams or call us on 01252 820002

Shipleys – email Charlotte Westwood or call us on 01483 423607

… to book your call

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

Copyright © Shipleys LLP and Your Right Hand Finance Team Ltd 2021