CASH FLOW - 10.01.2022

Preserving cash flow after the end of government aid

Government support packages have been a vital lifeline to ease the pressure on businesses throughout the pandemic. How can you measure and mitigate the impact on your cash flow now that these financial aids are no longer in place?

The end of government aid

According to figures from the British Business Bank, 1.67m SMEs have been offered government-guaranteed loans worth £79.3bn during the coronavirus crisis. In addition, almost 600,000 businesses took advantage of HMRC’s scheme to defer VAT payments between March and June 2021. Furlough support also finished at the end of September 2021. Without this government support, many businesses will start to feel a pinch to their cash flow in 2022.

Cash-flow management

With the prospect of a challenging trading period ahead and an unknown start to 2022, you need to think carefully about your cash-flow projections.

Tip. If cash flow is particularly tight, you may need to produce forecasts frequently, for example on an eight-week rolling basis, updated weekly. In other cases, cash-flow forecasts on a rolling twelve-month basis, updated monthly, will be sufficient.

Key factors to consider

Factor 1. Did your business revenues return to some form of normality by the end of 2021? If not, what impact has coronavirus had on your projected revenues and have these been reflected in your cash flow.

Factor 2. Is your business’s working capital sufficient to support the board’s growth ambitions. Does your cash-flow forecast include all the costs involved?

Factor 3. With inflation likely to rise, do your forecasts include sufficient funds set aside to cope with increased supplier costs?

Factor 4. Do your cash flows for 2022 consider the 6% increase in the minimum wage from 1 April 2022?

Tip. When labour is a significant cost line in your business, consider avenues that might help reduce spend to avoid getting to a situation where layoffs are required. For example, look for opportunities to reduce contract labour and redistribute work to your permanent workforce.

Factor 5. If the cash position is looking tight, are you able to spread the cost of some short-term bills to provide some relief and predictability to your cash flow?

Alternative finance solutions

Relying on your bank’s overdraft facility to manage cash flow can be risky as interest rates are usually higher and the bank could withdraw this facility at any time.

Tip. If you are facing a large VAT bill in the first quarter of 2022, there are specialist commercial finance providers that can offer flexible tax funding solutions to enable businesses to spread the cost of their VAT bills over a three to twelve-month period (see The next step ). This could help you to manage future cash-flow peaks and troughs.

For a list of alternative commercial finance providers, visit https://www.tips-and-advice.co.uk , Download Zone, year 14, issue 04.

Prepare cash-flow forecasts on at least a rolling twelve-month basis, or eight-weekly if cash flow is really tight. If you think you may struggle to meet the next VAT bill and would prefer consistency over your monthly expenditure, there are providers who will offer tax funding solutions to allow you to pay tax bills over a three to twelve-month period.