If at the end of 2019, I had been asked what the effect would be if the Government were to close large parts of the economy for a prolonged period and prevent many businesses from trading, my answer would have been to expect a substantial increase in business failure and therefore liquidations and bankruptcies.
Indeed, at the beginning of the first lockdown, it was reported that a third of SME business owners thought their business might not survive. Thankfully, this terrible scenario has not happened, and corporate insolvencies were actually down by 33 per cent in Q2 and 39 per cent in Q3 of 2020 compared with the same quarters in 2019.
Although there were some headline grabbing insolvencies in 2020, such as Debenhams and the Arcadia Group, I’d argue the various measures the Government introduced last year have, so far, protected many businesses from failing.
This support has ranged from the initial cancellation of business rates for those in the retail, hospitality and leisure industries to the provisions of grants, the deferment of VAT and other tax payments to low interest government back loans, with CBILS and Bounce Back Loans.
One of the most important initiatives was the introduction of the furlough scheme which has clearly saved many people from being declared redundant at a time when it would have been very difficult for them to find another job.
As an insolvency practitioner, I have spoken to business owners who, although struggling, have utilised the available support with the aim of getting through to the other side when things finally get back to normal. But of course, there have been failures, and I have worked with companies where the support was either not enough, or not even available, which resulted in them ceasing to trade and liquidation.
With vaccines being rolled out and the end of the crisis finally in sight, what can business expect in the coming year?
Although nothing is certain, the likelihood is that as the support is withdrawn, pressures will build, and some business and companies will inevitably struggle. As well as the ongoing payment of VAT and other taxes, taxes deferred from last year are now due, although if needed it is possible to spread these payments over time. From April onwards, interest and capital payments will become due on CBILS and Bounce Back Loans taken out 12 months previously. And at some point the furlough scheme will come to an end, adding further pressure on businesses who must decide whether they have sufficient work for all staff.
So, what can a business owner do to protect their business going forward?
Forewarned is forearmed, so anticipate problems before they occur, with the use of an ongoing cashflow forecast and seek early professional advice to maximise the options available to correct matters and so save the business.
Even if your business is financially healthy, you need to be aware your customers or key suppliers’ businesses may not, and what the effect might be if they were to fail.
Look out for potential warning signs:
- Are your customers slow in paying or asking for increased credit limits?
- Have payments been returned or delayed?
- Are they late in filing their accounts?
- Is their balance sheet weakening?
- Have they CCJs registered against them?
- Are they losing key staff?
Knowledge is key – if you can identify potential problems, you are more likely to able to do something to help and protect your own business.
0114 251 8850
Business Recovery & Insolvency Partner Hart Shaw LLP