20 May Cash flow cliff edge in the coming months for many SMEs predicts ICAEW.

The Institute of Chartered Accountants in England & Wales (ICAEW) has warned that many SME’s face a cash flow cliff edge in the coming months.

While many member firms of the ICAEW have backed the governments support packages for business, they have also warned that without continuing flexibility and imagination from the government that many SME’s face a cash flow crisis in the coming months.

The Coronavirus Job Retention Scheme and grant repayments under furlough are currently due to finish at the end of June 2020.

The Coronavirus Business Interruption Loan Scheme (CBILS) has been beset by banks not having the people and systems in place in the UK to deal with the demand. Many of the banks having offshored their credit functions to countries such as India, who are now also under lockdown. So now they are having to redeploy UK staff and train them, which of course all takes time.

Loans applied under CBILS, therefore, have still not been paid out weeks after being applied for, even by highly credit worthy companies.

The new Bounce Bank loan was introduced from Monday this week for small companies to help with faster applications but only to a maximum of £50,000 but with a restriction of 25% of 2019 sales.

Many companies have not applied for either form of loans because they are worried about their ability to make the repayments with all the uncertainties about the future.

Most company owners understand that the resumption of anything like normal business will require them to abide by the government’s current advice for employees of social distancing of 2 metres. That will have a serious impact on the way many businesses have to operate with their current capacity, without increasing overheads.

However, inadequate preparation for the resumption of business, lack of a formal risk assessment and introduction of strict hygiene measures, also exposes directors to personal liability under the Health & Safety regulations, if anything goes wrong in their business from Covid-19.

To recover to levels of business pre-COVID-19 business owners are also recognising the need to increase the current demand for their products and services. When many have ceased all forms of marketing or doing very little during the lockdown, this will take time. And if the sales tap cannot be turned on immediately, this will need financing.

Consequently Michael Izza Chief Executive of ICAEW has said that “Many SME’s are running down their reserves, with a quarter telling us they could be out of cash by July, and they need to be confident the government will continue to do whatever it takes in the longer term.”

If you are the owner of an #engineering or #metal #manufacturing business what do you do? Well to see if a government-backed loan makes financial and commercial sense for your business, you have to predict your future with 3-way financial forecasting – profit and loss, balance sheet and cash flow. The majority of the banks in CBILS will want to see such financial forecasts as a prerequisite of bank lending anyway but you need to understand how your business can come through this for your own peace of mind, so you are not one of those standing on the cliff edge.