28TH APRIL, 2020

Small Business Tips For Cash Flow During COVID-19

Cash flow is specifically about how money flows into and out of your business by way of income and expenditure. In order to stay afloat, ideally more money needs to be coming in than going out. Maintaining this positive cash flow means bills, supplier costs, wages and other outgoings can be met on time. However, negative cash flow can quickly bring about mounting debts and a struggle to survive.

Just a few short months ago nobody had ever heard of coronavirus COVID-19. It has taken the world by surprise as something none of us could have predicted. Its effects mean businesses having to quickly focus on their staff, logistics and business risks in order to keep positive cash flow going.

The full economic impact of the coronavirus pandemic is yet to be known, but there are steps you can take to help minimise the damage to your small business as much as possible.

Remember: You can’t control what you haven’t measured

Carrying out an up-to-date calculation around exactly what working capital your business has right now is an excellent place to start. Consider factors such as:

  • Have I invoiced all clients who are due an invoice?
  • Are there any invoices which are currently overdue? If so, how long overdue are they and how much are the amounts?
  • How much stock have I currently got?
  • What orders have I recently placed? Are these all essential or could some be postponed/cancelled?
  • What is the time gap between paying our suppliers for materials to receiving cash from customers?
  • How much cash is tied up elsewhere in the business?

Make sure you understand your current financial position

If there’s one thing the COVID-19 pandemic has shown us is that life can change rapidly. For businesses the ability to respond and adapt is essential.

In reference to cash flow, consider the potential short and medium-term financial implications of the coronavirus pandemic. Turn your attention to covenants and liquidity so that you can create an immediate cash flow forecast and plan accordingly. Don’t forget, it’s also worth checking through your finance documentation to see if there’s any flexibility on essentials like loans and credit. There may also be short term government funding schemes available (check out our recent blog: What Are The New Support Packages Available For UK Businesses During The Coronavirus COVID-19 Crisis?)

Quick tips for effective cash flow management

Now you’ve taken stock of your current position, it’s important to spot ways of managing your cash flow going forward. These include:

Invoicing quickly

Exactly when to invoice is something a business has plenty of control over, and it makes a big difference to cash flow. With this in mind, SMEs should aim to invoice clients as soon as their work has been completed. If you wait for a week or two then all you’re doing is delaying the time it takes to hit your bank account. Furthermore, if there are any problems with payment they’re often harder to sort out as time goes by, further holding up the cash. Sending invoices electronically is the best and fastest way to receive payment and keep a paper trail.

Doing some housekeeping

No we don’t mean spring cleaning your desk, but looking at how your business can be made more efficient. Why not look to see what data analysis tools you have for example and what reporting systems you use. Do they allow real-time reporting across multiple locations for instance? Also, are current cash flow procedures still relevant or do you need to put some new ones in place?

Cutting costs

Check through and see what overhead expenses come out monthly, quarterly or annually. Can you switch utility suppliers or cut back on rent to save money? Can you renegotiate interest on loans or cancel subscription payments for things you don’t regularly use?

Making payments easy for customers

Known for harbouring bacteria and viruses, in the days of COVID-19 cash is not necessarily king. Many businesses are now expanding their payment options and offering contactless for the first time too.

Customers should be able to make payment as quickly and easily as possible. Alongside card payments, online transfers are ideal but cheques should be avoided as they can result in delays.

Leasing equipment instead of buying it

By leasing computers, vans, cars and other business equipment, you can get the latest technology without tying up cash. You can also expense the lease costs on your business taxes.

Offering a delivery service

With bars, cafes and restaurants now closed, many businesses have begun offering cooked food and grocery delivery instead. If your business is in the food and beverage industry it’s well worth considering branching out and providing local home delivery. Not only can it be a good way to keep money flowing in but it also advertises your business in a positive light. Additionally, it can bring in new customers who may not have otherwise known about your business or tried using it.

Get clued up about where you can legally reduce your tax bill

No business wants to pay more tax than it needs to, and a good accountant will help you spot where gains can be made. However, make sure you read up on the various tax reliefs on offer, including things like R&D Tax Credits. This scheme works by offering a reduction in your Corporation Tax in respect of innovative research and development expenditure and is open to all UK businesses of all sizes in all industries. Loss-making companies can receive a tax lump sum instead and claims can be worth thousands.

Has your business developed a new product or service recently, or upgraded an existing one? Find out more about the scheme and how to apply on our R&D Tax Credits page.

Looking for a great value solution when putting together your R&D Tax Credits claim?

Why not try the Tax Cloud portal for businesses, developed by Myriad Associates. Simply use the calculator to enter your own figures and follow the application through from start to finish to receive the tax relief you’re owed. Of course you can also call our expert team of R&D specialists and accountants on 0207 360 4437, or there’s our contact page too. We understand that times are tough and are here to help.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

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Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey David Farbey MA, FISTC, FRSA Technical Consultancy Director
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
Lauren Olson Lauren Olson MA, MISTC Senior Technical Consultant