Focusing on small businesses priorities: Wrongful trading and cash management - a handy guide
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With so much going on at the moment and new regulations being introduced at speed, it’s easy for small business owners to miss things. Let’s face it, there’s enough to do just focusing on the everyday. However, it’s a good idea to set aside some time each week to familiarise yourself with any updates that are relevant to your business and industry. Here at Be Rescued, we try to flag up as much as possible, whether it’s new legislation, information on government support or action you should take to safeguard your business. This month we want to draw your attention to important legislation on wrongful trading and we’ve some tips on how you can manage your cash flow. We’re here to help and regularly provide advice for small businesses.
Wrongful trading and the Corporate Insolvency and Governance Act 2020 (CIGA)
COVID-19 has accelerated many changes in the way we work and operate, from mass homeworking to temporary business shutdowns under lockdown. Changes in legislation in the UK have been enacted to give us all breathing space to pivot and catch up. One important change has been The Corporate Insolvency and Governance Act 2020 (or CIGA2020) that came into force on 26 June 2020 and (Extension of the Relevant Period) Regulations 2020 S.I. 2020/1031(24 September 2020).
What is CIGA?
City barrister Professor Mark Watson-Gandy, explains “This is the new legislation that was introduced to help rescue companies in financial distress because of the COVID-19 pandemic and the resulting economic crisis.” (Counsel’s Opinion – Close, but no CIGA, Business Money, August-September 2020 www.business-money.com)
This new legislation has brought in temporary measures to help protect businesses against the worst effects of Covid-19. These measures ensure Statutory demands served between 30 March and 30 September 2020 (extended to 30 December 2020) are ineffective and an assumption that a director is not responsible for a worsening of financial position between 1 March 2020 and 30 September 2020.
With the ending of these temporary measures, the major concern is that you can’t file winding up petitions until the 30th December, so could be liable for wrongful trading if it’s considered that you were trading while knowingly insolvent. Business owners and Directors need to assess where they and their businesses stand.
Seeking help as early as possible is fundamental to survival not only to safeguard the business but the directors and owners position, in so far as their duties and liabilities are concerned. Maria Pombo, Director of Be Rescued, is a Turnaround Professional and Practising Professional Paralegal who can help you navigate this complex legislation. For confidential advice book a consultation with Maria via our partner Better Business @Hand.
Cash is king! Cash management tips for small businesses
Wrongful trading is an important piece of legislation that is there to protect the general public from negligent directors, just to make the distinction that negligent is not the same as fraudulent, it is a civil as opposed to a criminal offence. However, you really want to avoid accusations of wrongful trading as there will be serious implications for you and your business.
With the grace time for wrongful trading not being extended, it is essential that business owners focus on their cash management techniques. It’s simple, if you run out of cash and you can’t pay your bills, a disgruntled creditor may accuse you of wrongful trading, it is after all the business owner’s/director’s responsibility to look after the business’s cash position and not incur more debt or other liabilities.
Here are some cash management tips from the Be Rescued team
1. Cash is king
To be successful as a business you need to take care of both your customers and your cash. A healthy cash flow is the lifeblood of a business and vital to its wellbeing. As a business owner or director, you have a duty to preserve cash. Ensure that you keep a record of everything, so that if things go pear shaped unexpectedly anyone accuses you of anything such as wrongful trading, you have proof of your actions and decisions you made which may show no wrongdoing occurred. Now is the time to get all your ducks in a row! Whether your business has temporarily stopped or not during lockdown, now is the perfect time to review your cash management.
2. Keep calm and carry on
If you are experiencing cash flow challenges, the first thing is not to panic. It is vital that you keep your communication channels transparent and open. Talk to customers when trying to get them to pay on time, this is especially crucial when it comes to big orders or high value services where late payment could severely impact the business. Talk to creditors if there is a glitch in your payment pipeline. We are living in extremely difficult times; creditors might be more understanding than you expect. But it’s really important you keep people in the picture and don’t hide behind your cash flow issues. They won’t go away if you do nothing and by taking positive steps you can help the situation and avoid serious problems.
3. Plan, Plan, Plan
The old adage ‘Failure to plan is planning to fail’ is so true when it comes to cash management. Make sure that you have robust systems in place. Prepare a two-month forecast and split weekly so that you can check your coffers regularly to make sure your cash flow is healthy. Just remember that forecasting revenues is harder than forecasting costs, hence you have to keep a close eye on both your sales cycle and your cash management procedure. Be Rescued can help you with operational and/or marketing focused business plans. Find out more about our support and advice for small businesses.
4. Forecast for future gain
Sales forecasting is a powerful tool that can transform your business. Use your sales forecast as an opportunity to identify trends so you can diversify, offer different products/services, innovate or upscale. You will be surprised what a bit of number-crunching can reveal!
5. Use an independent advisor
While they are fundamental, don’t rely too heavily on your accountant or bookkeeper. Of course, they are among your most trusted suppliers and of immense value to your business but sometimes they can be too close. Use a trusted independent advisor to help you review your cash forecasting techniques or cash management procedure. This will give you an outsider view or help you understand better cash/sales cycles from a more commercial perspective. This could even help you preserve cash – the ultimate goal of cash management.
6. Make sure your data is pristine
Make sure your numbers are clean and accurate. The state of your data is super important, and you might trip up if you don’t have systems in place to ensure it’s pristine. If you have financial software, make sure it’s directly linked to your bank feeds as well as your sales, stock and purchasing feeds. This will ensure that everything is in sync and you have a sound data trail. Don’t forget that as a business owner or company director, the buck stops with you. Make sure the systems work and your staff understand what is needed.
7. Stay on top of your stock
Keep your stock relevant and shift it as soon as you can. If you have ready made stock on the shelf gathering dust it is more of a liability than an asset. If you have raw materials and your business is not producing, you can sell it back to the supplier to keep your stock low or to the bare minimum you may need for your order pipeline.
8. Negotiate
As business owners, we negotiate on a daily basis. It is vital that you negotiate your credit terms with customers as well as suppliers. For example, if your customers take 60 days to settle an invoice the chances are that you have to find working capital for 90 days to keep you going. So, find a happy balance by encouraging customers to pay in 30 days and negotiate deposits when placing an order and follow that through.
9. Do your research if you need outside funding
If your business needs working capital and you need to seek outside funding, it is important that you work out your numbers first and do your research. Don’t be tempted by too good to be true deals because chances are that they are probably not that good a deal for you or your business. So if it seems too good to be true, it probably is! If your business is struggling, Be Rescued can help you resolve your problems.
10. Check available support and government ongoing help available
The pandemic is making cash management stressful and challenging for small business owners. There is help out there, including government grants. The recent announcement of the extension of the furlough scheme to March 2021, the extension of loan schemes to 31st January 2021 and a more generous SEISS grant (self-employment income support scheme) has been a relief for many.
Here are some links to government support:
Coronavirus Job Support Scheme (CJRS)
https://www.gov.uk/government/publications/extension-to-the-coronavirus-job-retention-scheme
Self-employment Income Support Scheme (SEISS) grant extension
https://www.gov.uk/government/publications/self-employment-income-support-scheme-grant-extension
Business Grants
https://www.gov.uk/government/news/furlough-scheme-extended-and-further-economic-support-announced
Loans
Coronavirus Bounce Back Loans
https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan
Coronavirus Business Interruption Loans
https://www.gov.uk/guidance/apply-for-the-coronavirus-business-interruption-loan-scheme
Coronavirus Large Business Interruption Loans
https://www.gov.uk/guidance/apply-for-the-coronavirus-large-business-interruption-loan-scheme
Coronavirus Future Fund
https://www.gov.uk/guidance/future-fund
So, the key takeaway is…
Keep a tight rein on your cash management and check what support is available for your business. As a business owner or company director you need to know what cash is coming into your business and going out at any given time. It really helps to have a pair of expert, independent eyes look over your cash management and sales cycle, to make sure you are dotting the i’s and crossing the t’s.
Be Rescued work with business owners on our doorstep and beyond. So, if you’re looking for small business advice in Downham Market, King’s Lynn or Swaffham we’re local but whether you’re in Norfolk or Northamptonshire, we can help. If you need advice on financial and business planning or have a business challenge book an appointment with Maria Pombo. You can also learn about what other help you can get from other professionals Maria works with by visiting our partner Better Business @Hand.