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On Business, On Marketing, SEO / 20 Mar 2020
How to get a Cash Injection

Nº3 in the series
“Managing your Business in a crisis”

So this is the big one for most businesses: how do I cope with cash flow when the tap’s been turned off? Looking down the list, well over half of my clients are sole-traders; quite significant businesses, but technically self-employed. As Rishi Sunak has pointed out – it’s complicated. Whilst I am trying to keep these posts as upbeat as possible I do have to start this one with a bit of a reality check. The big difference for business income is that, unlike a well-managed household budget where 80% of your income (i.e. what the chancellor has offered PAYE employees) will cover outgoings, it doesn’t quite work like that for businesses does it. Here’s a typical example (granted this assumes that business has dried up completely but hopefully it makes the point):

EXAMPLE HOUSEHOLD BUDGET

Pre-Virus

  • Outgoings per month £1500
  • Income £2500
  • Disposable income £1000

Current situation

  • Outgoings per month £1500
  • Income £2000 (80% of income from Chancellor)
  • Disposable income £500

EXAMPLE BUSINESS BUDGET

Pre-Virus

  • Overheads per month £1000
  • Variable costs per month £500
  • Top line revenue £2500
  • Profit £1000

Current situation

  • Overheads per month £1000
  • Variable costs per month £0 (business not buying stock-in-trade)
  • Top line revenue £0
  • Income £800 (80% of income from Chancellor)
  • Loss £200

To further compound the problem it’s looking likely that most eligible businesses will not receive any government cash until June, albeit back-dated, but even in this mini scenario above there would be £600 of accumulated debt before the cavalry arrives.

So what can we do?

Number 1 has to be ‘Stay positive’. I know these are easy words to say and much more difficult to do when your business if going to hell in a handcart here’s the thing; as success breeds success so positivity breeds positivity. When stressed, all kinds of odd things start to happen to your amygdala based on ancient evolutionary developments around you fight or flight mechanism. It’s essential to try to stay calm and one of the easiest ways of doing this is being kind. Kindness has the reverse effect on your brain, suffusing it with endorphins and making the world seem like a better place. Pile positive action on top of this and you’ll become unstoppable. So, in simple terms, instead of raging against a situation over which, by and large, you have no control, look around and see if you can do something nice for your customers.

Number 2 – let’s look at what’s out there to help

  1. VAT holiday – on first site this may seem a bit of a hollow offering. Getting a VAT holiday for the three months which are likely to be your worst trading months since you began, seems like not much use. BUT if your income is in the bin whilst your outgoings are not, then get your return in! This might be the first time ever that your input vat exceeds your output vat and the chancellor owes you money. Even if you do have a liability (which is good because it means you’ve done some business) there’s no harm in shoving the liability down the line a bit whilst you wait for the 80% of income grant.
  2. Self-assessment holiday – As above, no harm in shoving the July payment down the line six months but don’t forget that a large part of your January payment is ‘on account’. I.e. an amount based on your predicted income from your previous year’s return. If, in the likely event, you believe your income will be lower than predicted, speak to your accountant and make sure your return reflects this.

    A point to bear in mind for both VAT and Self-Assessment is that you will still need to put in your returns even if you are going to take advantage of the deferrment.
  3. Rates Holiday – I’ve heard from at least two clients that their deeply wealthy landlords have turned down their request for a rent holiday (nice). One fears that these are not isolated stories but don’t forget that there is a business rates holiday available. Let me rely on my lovely accountants to walk you through this one: Get Help with Business Rates: Coronavirus COVID-19 
  4. Coronavirus Business Interruption Loan Scheme for SMEs – there’s already been some bad press about this and rightly so as banks are asking for personal guarantees for loans that are 80% guaranteed by the government. Firstly can I urge you do anything to avoid signing a personal guarantee or allowing the banks to have a charge over your house. In desperate times this seems like a trivial thing to do if you can get you hands on £££s, but I have encountered so many instances over the years of clients who have blithely signed such documents thinking ‘What could possibly go wrong?’ only to find themselves facing having to sell their family home. Honestly it can and does happen.

    Secondly can I urge you to be very wary of invoice finance.
    Again, in desperate times this looks like a winning idea. So you have £20,000 tied on your debtors list – what you wouldn’t do for a chunk of this. Along comes a nice man who says he’ll give you £18,000 now with balance when they have been paid by your debtors. Sounds good right? Hmmm …

    • Now, instead of you calling your clients to chase up a payment, someone who doesn’t really care whether you retain the client makes the call. It may work once but it’s amazing how quickly people can change suppliers as a result of heavy handed credit control
    • The interest rate charged on any of outstanding balance can be quite eye-watering and accumulates very fast if a debtor doesn’t pay. Interest rates for long and short-term loans from other sources of finance are much more attractive.
    • Once they’ve got you you’re stuck. The invoice finance company now owns your sales ledger. In order to regain control you have to buy it back. So, in the example given above you need £20,000, plus any outstanding fees and interest PLUS you still need money to run your business. In simple terms, let’s say your monthly cash requirement is £20,000. To buy back your ledger in any given month you would need at least £40,000 or a doubling of your profits. VERY few companies see their profits double like this and so you are stuck in an invoice finance vicious circle.
      I hope the ideas below will go some way to helping you avoid the banks for now but honestly, in my view, you’re better off maxing out your credit card than signing a personal guarantee or invoice finance! Nb – this is NOT advice! Just saying …

Number 3 – Here are six things that I know have helped customers to raise badly needed cash that I have seen over the years:

    1. Offer ‘Pay now’ incentives
      If your business usually gives credit offer an incentive to pay sooner. Whilst you may be struggling, other businesses who have cash will appreciate the opportunity to improve their margins by getting a discount for early payment. It’s a good idea to time limit the offer, e.g. 10% off for payment within three days.
    2. Have a fire sale
      Part of my advice in my second post ‘Managing your business in a crisis’ was to have a good hard look at your stock list. There’s bound to be items in the warehouse / stockroom that you may even have forgotten about. Remember, once upon a time you paid for these things – it’s time now to get your money back. Get up a list of redundant stock items and discount the hell out of them for cash. Even if your stock turn is perfect (whose is?) there’s going to be products and services that you can offer for sale.
    3. Incentivise deposits for future business
      This worked well for an oven-cleaning company I worked with. Finding themselves in a bit of a cash-flow crisis (I think it was an HMRC bill) they offered a discount for future bookings with a deposit. I can’t remember the exact maths but it went something like this:
      Book now for £15 and receive 15% off your next booking. They had around 400 customers in SE London of whom around 50 took up the offer instantly netting them £750. Not big money for sure, but a pretty good idea.
    4. Adapt and be flexible: Three examples from my customers:
        1. A large events / catering company who have ALL their events cancelled for the foreseeable, have turned their kitchens into ‘freezer food’ production and are selling to local homes.
        2. Two Personal Trainer clients have gone entirely online doing live-streamed exercise sessions to their customers
        3. A beauty clinic, realising they have no chance of doing one-to-one treatments, are concentrating on selling their beauty products online. They have mailed all their clients offering generous discounts for cash orders.

      If most of your transactions are large, and therefore difficult to turn into quick cash, think about whether you can sell any smaller items. It stands to reason that one £1000 item amounts to the same as 1000 £1 items. £1 items are much easier to sell for instant cash.

    5. Chase outstanding debtors
      Never be afraid to call up and chase an invoice, it’s your money. However, before you call here’s a little check list to make sure it goes well:

      • Have a quick check in the bank account, you never know they may have paid you an hour ago – you don’t want to look like the B team
        Deny them wriggle room –
      • Check that you have invoiced correctly according to the quote
      • Check the D note to see when they actually received the goods
      • Make sure there are no outstanding credit notes to be issued
    6. Make it easy to pay
      Don’t put up barriers to payment by only accepting one method. Nowadays every business has access to credit card payments via providers such as paypal, it’s also easy to set up online payments and even small businesses can quickly and easily set up direct debits via providers such as gocardless. No more ‘Cheque’s in the post‘. It’s really stupid to go bust because you moaned that Visa charge 2.8%. What would you rather, no money or all the money less 2.8%?

Finally – Today’s tip for driving sales conversions: ADD VALUE
Don’t just do what everyone else does – add some value to your offer; package up your product with something extra, offer free gift-wrap, free delivery, a free ‘how to’ booklet, free telephone support, free after-sales service ….. be creative.

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