< Previous20 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk TAX Getting back to business, a transition to the new order By James Pinchbeck, Partner at Streets Chartered Accountants A t the time of writing, we are in week five of lockdown with just under three weeks to go to the end of the second official period. For businesses and the self- employed, the last month or so has been focused on taking steps to manage business in a state of lockdown. For most, the impact has been a significant reduction, if not a total loss of revenue as many have been unable to avail themselves of goods and services. The exception, however, appears to be those that have been able to adapt or offer services or products online. In these unprecedented times, it is unlikely that many business leaders have experience of dealing with such a situation. Economic downturns, recessions and even the financial crisis, which was more than ten years ago, may help people’s thinking or approach to managing the situation, but we are still aeons away from being able to learn the lessons that the current crisis is teaching us. As such, we have turned to the government for leadership, intervention and support both in terms of looking after the health and wellbeing of people, but also economic prosperity and individual livelihoods. The last few weeks have undoubtedly seen most businesses focused on a mix of looking at possible ways of continuing some form of business activity, through getting to grips with various measures of support available to them. With more than 70% of the UK’s Financing a reboot, the business going forward Looking to finance, the ability for businesses to start to get back up to speed will be as much dependent upon its financial viability and working capital situation as when we entered lockdown as it does when it is eventually lifted. It has been widely reported in the media that businesses have in the region of three months of working capital. Beyond this period, many would start to struggle and face financial vulnerabilities. Undoubtedly, the CJRS grant should have eased this situation but creditors will have had to have been paid along with fixed overheads. For those able to continue to trade there will also have been additional, unexpected costs related to adapting. Right now, objectives on file are likely to be different from a very different- looking pre-lockdown situation. The focus must now be on driving cash into the business, re-establishing the customer base, improving profitability, developing new and or more efficient ways of doing business, or instigating new working practices based on lockdown working. The danger is that some businesses will perhaps start to reopen based on the ‘factory reset’ model, wrongly assuming that everything will simply start work again as it did previously. In terms of addressing the need to ensure finances are in place to take the business forward, many will have started workforce currently furloughed, most employees are likely to have been away from work for a period of time much longer than any typical amount of annual leave would normally allow. As such, they are likely to experience challenges around re-adjusting to work and getting back up to speed as well as perhaps having a need to understand the impact of COVID-19 on the business and its operation. If an organisation has sought to manage its staffing through a combination of both furlough and reduced working hours, then it may need to consider the perhaps unintended and potentially negative consequence of such an approach in terms of staff morale. This is a situation that can be easily exacerbated if returning employers are phased back as opposed brought back all at once. Employers will also need to consider the financial impact of employees transferring from furlough rates, back to their full pay. Lockdown and changes in working practices required to deal with the situation may have led to situations where employers find employees roles have changed and therefore could give rise to the need to reskill or change roles, or unfortunately potential job losses as roles become redundant. This change in circumstances may also trigger feelings of unrest and review among some, meaning while they do return to work, they might also be considering a career change or exploring other avenues. 20-21.qxp_Layout 1 07/05/2020 10:43 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 21 TAX this as part of good practice or as part of an application for support via the Coronavirus Business Interruption Loan Scheme. The real test here is ensuring that the business has sufficient working capital and the most appropriate funding model to sustain a steady return. The great risk for many is that whilst they have managed to stay afloat in the downturn, they don’t have the financial wherewithal or collateral to trade through the other side and maintain profitability. Looking to longer-term and the new order or new norm Much of what has been covered looks at the transition from lockdown to a return to normality. The term normality has been used as opposed to the norm because it is widely claimed that the impact of COVID-19 is unlikely to lead to a return to the world as we knew it. COVID-19 certainly has been unprecedented in terms of its impact on the whole world. It has and will continue to shape all our thinking especially around the way we live our lives and what is important to us as a consequence businesses will need to consider the longer-term impact whether it is actually around there very existence and role, through to how they operate and conduct themselves. The pandemic and lockdown have in many cases accelerated a number of emerging trends, including the use and adoption of digital technology, remote working, employees’ desire for better work/life balances. This is in addition to a growing appreciation and awareness of the impact of how we live our lives and the impact we have on the world. Those businesses and employers that recognise this and seize the opportunity to change and adapt no doubt will benefit greater than those who simply continue what they have always done. This runs the risk of becoming further and further behind the curve, which ultimately is something none of us wants to see. 20-21.qxp_Layout 1 07/05/2020 10:43 Page 222 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk CORPORATE FINANCE Finding the Securing corporate finance can be a literal lifeline for struggling businesses, especially at a time when the entire economy is facing financial insecurity. We explore the ways in which businesses can unlock funding and weigh up the pros and cons. 22-25.qxp_Layout 1 07/05/2020 10:46 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 23 CORPORATE FINANCE L ate payments are one of the biggest pitfalls facing businesses, especially for smaller firms and start-ups. According to the Federation of Small Businesses, late payments contribute to 50,000 insolvencies every year, costing the economy £2.5 billion. Though much of the blame here lies with the billed party not paying in the specified time period, the companies themselves do bear some of the burden. The ‘Taking Notice of UK Business’ white paper found that as much as seventy-five per cent of SMEs would fear taking action against a late payment for fear of damaging client relationships. For these reasons, invoice finance has become a literal lifeline. This is the simplest means of releasing cash tied up in a businesses’ outstanding invoice. It essentially sees a business sell its invoices to a third party who will advance some of the funds it is worth up front for a cut. Thousands of businesses rely on this kind of financing to maintain a healthy cash position, whilst others use it to take back control of cash flow issues that arise from late and unpaid invoices. Perhaps the biggest draw is that businesses can be paid most of an invoice within forty-eight hours instead of the typical thirty-day period specified on most invoices. As with all forms of financing, however, there are things businesses should consider – namely the kind of invoice finance a company requires. There are several different kinds, from invoice discounting to spot factor, so finding the right one is key. It’s also important to look at individual providers themselves, as some will insist on managing credit control themselves which could, understandably, alienate some customers. Of course, invoice financing is far from the only finance solution businesses can draw from. Asset-based finance, for example, is a specialised method of providing companies with working capital and term loans that use accounts receivable, inventory, machinery, equipment and real estate as capital – essentially, any loan to a company is secured by one of that company’s assets. This option is commonly used to pay for expenses when there are gaps in a company’s cash flow, but it is also frequently used for start-up financing as well as refinancing existing loans, financing growth, mergers and acquisitions, as 24 Á © Shutterstock /LookerStudio 22-25.qxp_Layout 1 07/05/2020 10:46 Page 224 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk CORPORATE FINANCE well as management buy-outs (MBO) and management but-ins (MBI). Although it’s not suited to meet every business requirement, it can prove useful for those that have stretched their credit limits with vendors and reached lending capacity at the bank. Private equity, on the other hand, is where investors provide long-term equity capital investment in a company in return for either shares, a percentage stake in the business and/or, sometimes, a seat on the board. The draw for businesses is that private equity can be used to finance MBOs, or to provide equity capital to support growth plans. Although many businesses might be loathe to dilute their ownership, private equity does offer a good option of raising capital for businesses that aren’t ready to list on the stock exchange. For those looking for capital quickly, it’s important to bear in mind that securing private equity is often a time-consuming process and securing funds isn’t always guaranteed. Another form of private finance is an angel investor who, simply defined, is a high net worth individual who makes use of their own personal disposable finance and makes their own decision about making an investment. Angels would normally take an equity stake in a business in return for providing equity funds. As well as capital, angels can also provide their experience, knowledge and contracts, making them especially attractive to early stage businesses. Every investor is different and will therefore provide differing amounts, but typical investments range from between £10,000 and £500,000, though deals of up to £2 million are becoming more commonplace as angels group together in syndicates. Although angels are one of the most 22-25.qxp_Layout 1 07/05/2020 10:46 Page 3www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 25 CORPORATE FINANCE significant investors in start-ups, that shouldn’t deter more established firms from making enquiries. It’s important to keep in mind that securing an angel can be a difficult and protracted process, as well as being harder to research and contact compared with a private equity firm. As we have already explored, capital is often sought to help fund MBOs which is a transaction where a company’s management team purchases the assets and operations from the business owners. From a manager’s perspective, an MBO is an attractive option as it allows them to take the reins and enjoy greater control and freedom owning the business rather than serving as an employee. It’s equally advantageous from a seller’s point of view as it allows corporations to shed non-core divisions or to retire. A typical MBO will see a management team pooling resources to acquire all or part of the business they manage, and this financing is often comprised of personal sources, private equity and seller financing. An MBI, on the other hand, is where an external management team acquires a company and replaces the existing management team. In an MBO, the management team is a known quantity and therefore has a greater understanding of their business and its employees, but an outside management team will need to become acquainted with a company’s operations, as well as build up relationships with clients and staff. Businesses are beset by all manner of challenges and financial pitfalls, doubly so in the outbreak of COVID-19, but there exists a variety of different finance options in order to circumvent these issues and keep trading. © Shutterstock /Andrey_Popov 22-25.qxp_Layout 1 07/05/2020 10:46 Page 4Subscribe now and receive Business Link every month, delivered to your door Delivery Details Name:............................................................................................ Position:......................................................................................... Company:...................................................................................... Address:......................................................................................... ........................................................................................................ Postcode:....................................................................................... 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Minimum term of 12 months / 1 Year 2 Years 3 Years Please charge my: 26.qxp_Layout 1 07/05/2020 10:52 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 27 BREEDON CONSULTING Q&A There appears to have been some misunderstanding about the details of the Coronavirus Job Retention Scheme, why is that? When the Chancellor announced the Coronavirus Job Retention Scheme, we all craved some details. Since then, it’s been clarified that any employee can be furloughed provided they were on the employer’s payroll on 19 March 2020, RTI payroll data had been submitted on or before that date and the reason for their furlough was due to circumstances arising as a result of coronavirus. It’s the employer’s decision whether or not to furlough an employee, but where furlough has been agreed, employers can claim back 80% of the wage costs up to a maximum of £2,500 per month, plus the associated employers National Insurance contributions and minimum statutory auto enrolment pension contributions. What’s your experience been of how SMEs are coping with the pandemic? SMEs tend to be able to react quickly, and we’ve seen a lot of immediate responses. We’ve also supported some very swift consultation exercises to change terms and conditions of contracts, which would normally be spread over much longer timeframes. Where companies have been able to access the right advice, they’ve been able to make informed decisions, but otherwise there’s been a lot of confusion resulting from the lack of detailed guidance. That’s why we’ve been offering free advice to business owners via webinars, videos and email. What’s been the most frequently asked question? It probably relates to holiday during furlough leave, whether or not employees can take it without it bringing the furlough period to an end and how it should be paid. The answer is yes, they can take holiday and it should be paid at 100% of normal pay in line with employment legislation. It’s important to remember that all the other legislation is still in force, the Coronavirus Job Retention Scheme sits alongside it. What’s the one piece of advice you would give companies coming out of lockdown? Start planning! Going into lockdown was tough and companies just had to react to what was happening. That was only the start though and it’s important that companies plan for coming out of the other side. The HR implications are huge and will vary from business to business, but might include a period of short time working, changes to terms and conditions, restructures, redundancies, retraining, not to mention the effect on team morale and mental health. There might be individuals whose performance has dropped when they’ve had to be more self-sufficient, and then there’s the positives with efficiencies which have come from necessity and people who’ve really upped their game during the crisis. Business owners must be ready to hit the ground running, so having a HR plan ready is critical and, of course, we’d be very happy to help put one together for your business. For more information on HR support, contact the Breedon Consulting team on info@breedonconsulting.co.uk, or visit www.breedonconsulting.co.uk. Q&A Nicki Robson, Managing Director, Breedon Consulting East Midlands Business Link spoke with Nicki Robson, Managing Director of Leicestershire-based HR consultancy Breedon Consulting, about her experience of the Coronavirus Job Retention Scheme and planning for post-lockdown. 27.qxp_Layout 1 07/05/2020 10:54 Page 128 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk ONLINE TRAINING © Shutterstock /fizkes 28-31.qxp_Layout 1 07/05/2020 10:55 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 29 ONLINE TRAINING T raining comes in many forms, from a training provider visiting a business to educate and upskill staff, to employees being sent to a dedicated training facility for a session, seminar or course. Of course, during the current situation in which social distancing is critical and lockdown measures are enforced by law, these types of training can no longer take place. Although online training has existed in one form or another for decades with many people – from students right through to senior staff – taking advantage of it. Over the last few months, however, it has exploded in usage as apprentices look to maintain their learning, companies complete their employees training and individuals that are now working from home or have been furloughed look to use the time to upskill. Outside of the crisis, the appeal and popularity of online training lies in its flexibility. From a home office or smart device, it can be worked around any schedule, fitting in with other engagements and appointments. Until recently, it could also even be undertaken on to go, turning that daily train or bus commute into a learning opportunity. That same flexibility is what has given online training an edge over its counterparts, allowing an uninterrupted learning stream for all manner of individuals while they observe social distancing regulations. Of course, with a huge number of workers now based at home, bandwidth limits have been stretched and, in towns and cities especially, internet speeds have been affected. However, many training providers will offer apps and other digital resources with come ready downloaded with myriad tools and information, thereby ensuring that even when internet speeds waver, training can still take place. There’s no denying that the pandemic and the measures implemented in order to fight it have massively disrupted every aspect of our lives. It’s fundamentally changed our working lives and will likely leave a lasting impact on the corporate world. These disruptions were keenly felt by apprentices who, in many industries, have been forced to put their learning on hold, potentially putting their future careers in jeopardy. Although apprentices can pause their apprenticeship for up to four weeks without affecting their ability to complete it, e-learning can help to minimise these disruptions so they can continue their learning and help to safeguard their future. The government has committed to supporting both apprentices and employers to continue to build the skills capabilities the country needs in the here and now and in the future. In this way, employers and training providers are indispensable for the continued wellbeing of the economy on a regional and national scale now and in the years to come. It is the government’s ambition to support “wherever possible” apprentices to complete their apprenticeships adding 30 Á online Upskill Over the last few months, there has been a widespread move online with training providers upskilling individuals, employees and apprentices from the safety of their own home. 28-31.qxp_Layout 1 07/05/2020 10:55 Page 2Next >