The cashflow pinch points facing SMEs

money

Head of Consulting at Leyton UK, Radeep Mathew, shares his views on the cash flow issues that SMEs are facing…

For many SMEs, the last few months have been a huge challenge in terms of cashflow. Delays to emergency loan payments and huge uncertainty about when life might return to some semblance of normality have created huge difficulties for SMEs, and many have relied on government support to get through this period.

However, many SMEs are now seeing the light at the end of the tunnel as the retail sector tentatively prepares to return. However, businesses must not become complacent. As government support schemes are scaled back over the coming months, the uncomfortable truth is that there will be more tough times ahead.

Faced with this reality, it is crucial that businesses monitor the potential cash flow challenges over the next six months to a year, and consider the options available to navigate these possible difficulties. Many businesses have been forced to continue paying certain fixed costs over recent months, dwindling away important working capital. Cash may also be tied up in unpaid debt – something to be aware of when facing the cashflow challenges over the coming months.

1. Staffing costs

Recent figures show that over 8 million UK workers have been supported by the Government’s furlough scheme, which has helped to reduce the burden of staffing costs through the crisis. However, this scheme will not continue indefinitely. It is currently set to finish at the end of October, and funding for the scheme will be gradually reduced from July. Businesses that have taken advantage of the scheme in recent months should think carefully about how to navigate any sudden changes to their staffing costs and the peaks and troughs that this could cause.

2. Corporation tax

For most UK companies, corporation tax payments are due around the start of October or in the new year, depending on their payment schedule. However, having the cash to cover these payments may be particularly challenging this year. However, there are solutions to this. HMRC’s ‘time to pay’ arrangements are likely to remain in place. Businesses that are concerned about being able to pay their tax bill can speak to HMRC to discuss how they may be able to spread their corporation tax payments over a period of up to twelve months, preserving vital short-term cashflow.

3. VAT

One of the recent measures put in place to help businesses with cashflow is the deferral of various VAT payments. Businesses can apply online for a deferral, pushing the deadline back to 31 March 2021. While this may seem like a long way away, planning will be crucial to meeting this new deadline, especially given the other strains on cashflow.

For those businesses that have not deferred their VAT payments, having the short-term cash on hand will be crucial. There are various options to achieve this – one that shouldn’t be overlooked is R&D tax credits. This is a highly underused form of tax relief that can put thousands of pounds in the hands of businesses in a matter of weeks.

4. The festive period

The festive period is probably one of the last things on the mind of small business owners at the moment, many of whom are facing more immediate challenges.

However, it is something that must be taken into account when trying to consider longer-term plans. The festive period can have some impact on cashflow, and companies may delay payments to suppliers during this time. If your business will depend on cashflow during this period, it is important to consider how you can best prepare for this, and what contingency plans need to be put in place if payments are delayed.

Moving forward…
With these cashflow challenges ahead for SMEs, the next few months won’t be plain sailing. However, by planning effectively and taking the right steps to support cashflow at critical moments, well-prepared businesses will be able to weather the storm and will be best placed to benefit as the economy eases back into life.

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