Innovative short-term cash-flow management

Finance experts and SMEs share their tips on how to keep your business liquid during lockdown.

Government schemes such as small business grants have helped. But there are many other shrewd, less obvious money-management methods for trying to make sure your company’s cash well doesn’t run dry.

Get smart with payments

1. Rework debt

Company leaders can do more to ensure that sustainable amounts of money are leaving their businesses than just hopefully appealing to creditors for longer to pay.

“We’ve agreed with firms that they’ll freeze payments for what we already owe them for now, but we’ll pay up front for any new items we need,” says Jamie Bennett, CEO of sports turf company Advance Grass Solutions.

Many firms have arranged to pay bills in instalments. But if you can’t afford even that, experts suggest you could consider offering creditors equity in your business or services in lieu, if this makes long-term financial sense for your business.

2. Be fair but gentle

“A lot of my overseas clients have been in more severe lockdown than us, so I’ve had to be understanding rather than hassle them for money,” says Pandora George, co-founder of travel PR agency Authentic PR. “They’ve all paid in the end.”

Adam Brodie, co-founder of professional services firm Ignition Financial, suggests that one way to get money from clients now rather than when the crisis passes is to offer them discounts if they pay for services in advance.

3. Sort out the rent

Lots of landlords have been more than happy to defer rent payments. But if yours is a little trickier, try bolstering your negotiating position by mentioning improvements you’ve paid for at the property.

“Teaming up with other tenants to argue your case may be effective,” adds Stuart Crook, a partner at Wellers accountants.

4. Change bill terms

Ask utility firms to reduce regular set-payment amounts while your premises are largely empty, so money stays in your account rather than building up as credit in theirs.

If you’ve just bought insurance in a lump sum, see if you can get the money back and pay it in instalments instead.

“Switch to pay-as-you-go rather than monthly plans on email marketing platforms such as Mailchimp, while you’re sending out fewer messages,” adds Josh Spencer, managing director of Hampshire marketing agency TLC Business.

Cost-cutting: areas for attention

1. Scrutinise headcounts

The lifeblood of a small business is its staff, and making tough decisions around staffing will be very difficult for many business owners.

Furloughing employees is not the only way to reduce staff expenses. It’s worth exploring whether it would be cheaper to outsource HR roles or delivery drivers, for instance, at least for now. Accounta¬¬ncy apps might do the work of more junior finance employees.

2. Limit marketing

With people shopping less, Tobias Kormind, managing director of jewellery retailer 77 Diamonds, suggests restricting marketing spend to methods that bring immediate returns. “We’ve cut a large proportion of things like magazine [advertising] and digital display,” he says. “Our focus is on the likes of Google keywords.” It’s worth bearing in mind: Google is giving SME customers worldwide $340m in ad credits during the crisis.

3. Strip out non-essential services

“Go through all your standing orders and bank statements and if there’s anything you’re not really using at the moment, cancel the payments,” says Adam Brodie. “The savings soon add up.” This could range from a journalist database for PRs to a project-management service, for example.

Josh Spencer suggests downgrading from paid-for software to the simpler free versions, providing this doesn’t hamper your work too much.

4. Realise assets for short-term funding

Try liquidating excess stock you can’t currently shift, says Tobias Kormind, who has sold gold on to wholesalers and smelters. You could also sell equipment and lease it back.

5. Move cash around

Have you been sensible enough to do a little emergency planning and save some personal cash for a rainy day? Rather than taking a salary out of your business during lockdown, Stuart Crook suggests putting the money into your pension to reduce your company’s tax bill. By contrast, you could release funds by drawing down from your pension pot.

See if company directors or family members can move money from other accounts into the business, perhaps as a gift or to be paid back later. Look at exchange rates to see which currencies you could transfer company funds into, particularly those in countries less badly affected by the pandemic.

6. Think tax

HMRC is currently very amenable to allowing firms to take longer to pay their taxes, including PAYE. For instance, VAT due between 20 March and 30 June doesn’t have to be paid until 31 March, 2021, so it’s a good idea to accelerate sales into this period, if possible.

The government’s R&D tax relief scheme is aimed at any businesses (not just technology firms) that are innovating new ways to improve processes and products. Firms can receive substantial slices of what they’ve spent via tax refunds.

Now is also a good time to check you’re not overpaying on tax and import duties.

7. Look at alternative funding

Apart from prominent government initiatives, there are several other sources of financial backing for SMEs.

These include the Future Fund, which provides innovative companies with a government loan of up to £5m.

Crowdfunder, meanwhile, is allowing businesses such as restaurants and arts venues to ask customers for money now in return for future discounted meals, training courses and other rewards.

“We took part in the world’s largest virtual pub quiz to try to raise £1,000 for takeaway equipment through Crowdfunder,” says Will Farmer, landlord of the Dyke Alehouse & Kitchen in Brighton.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.

scroll to top