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Beyond the balance sheet

The furlough scheme end date is approaching! Are you prepared?

Ercan Demiralay 17/9/2021 5 minute read

Ercan Demiralay FCCA, on how SME businesses can prepare for trading after the furlough scheme comes to a close.

The furlough scheme end date is very close!

This has implications for many SME businesses that have been reliant on government support to survive through the pandemic and its related restrictions and lockdowns.

In this post we explore what the end of the scheme means for business owners, and how to manage cash flow in difficult trading circumstances when the support is finally withdrawn.

How to keep trading after the furlough end date? Get in touch >

What is the furlough scheme and why is it finishing?

The Coronavirus Job Retention Scheme, also known as the furlough scheme, is a grant from the government to help employers pay part of their employees salaries during the COVID-19 pandemic by keeping them on the payroll. This was instead of making them redundant which  could have potentially caused mass unemployment.

The scheme was originally scheduled to end in October 2020 but was extended several times by the government as further waves ensued from the pandemic. However, it won't be extended any further as the cost to the government has ratcheted up to £66bn.

Now that the economy is opening up, following mass vaccination of the population, the Chancellor feels it's appropriate to bring the scheme to a close.

When does the furlough scheme end? What does it mean for businesses

From 30 September 2021, the government will withdraw support provided through the scheme. If you have employees on furlough then we'd suggest you send them a communication that they will be recalled to work, and it is recommended that they do so. For many businesses however, trading remains challenging.

This is the case for organisations in industries particularly impacted by the pandemic and its related restrictions. For these businesses, they face the prospect of no longer receiving support for paying employees via the furlough scheme, whilst also servicing emergency loans in the near future.

It means the future outlook remains very uncertain, especially in sectors such as the hospitality trade. The Guardian has speculated that a million jobs could be at risk because 1 in 16 UK firms could face closure when the furlough ends.

Supply chains have been badly disrupted by the pandemic, wages are also rising due to record vacancies and a lack of suitable candidates to fill them. The cost base for many SME firms is likely therefore to have risen significantly but demand, and future sales remain somewhat uncertain. Unfortunately many businesses now face trading amid limited resources from cash flow pressures.

What happens after furlough? How to prepare

If you're concerned about what your commercial future looks like post furlough, then there are options and things to consider which might help you through these challenging circumstances.

1. Cash flow management and credit control

Almost all businesses in their lifecycle will have experienced a sudden drop in sales with a severe impact on their cash position. The consequence being money going out through withdrawals is greater than the cash injections coming in. These credit control tips can help you manage and improve your cash flow.

  • Review your sales ledger carefully, who is owing you money and what is the value?
  • Are you sending invoices out immediately when work is completed?
  • Keep an eye on your invoices, which ones are due for payment, which ones are overdue?
  • Are you chasing customers that owe you money?
  • Do you offer discounts for early payments?
  • Where customers are struggling to make payment, have you offered them a payment plan to make settling the liability easier and guarantee money is coming in?
  • Have you considered factoring? This allows you to collect a cash advance, from an organisation that purchases your invoices or debt, as a percentage of the value of your outstanding invoices
  • Have you looked at invoice discounting? This is where you draw money in the form of a loan against your sales invoices before your customers have actually paid you
  • Have you reviewed your profit extraction strategy?

2. Employees

One of your biggest monthly outgoings is likely to be your payroll. You could make employees redundant, but this has significant long term consequences in terms of customer service, operations, and staff morale. If you have a loyal workforce that have helped build the business up, you may be very reliant on their skills, attitude, cultural fit, and customer relations. What are you to do?

Redundancy, in such circumstances, should perhaps be the absolute last resort. Instead, consider how Barry-Wehmiller avoided layoffs in the 2009 recession where 40% of their orders dried up. CEO Bob Chapman got everyone in the business, from top to bottom, to take unpaid leave for 4 weeks.

This ensured no one group took the financial pain and everyone had to pitch in to help each other so that the business survived!

3. Suppliers and stock

Do you owe money to suppliers and are you struggling to settle these liabilities? Communicate with your suppliers about the situation immediately. You can do this with the aim of securing a potential payment plan, to spread the amount owed over a number of months or, obtain an extension of credit thereby delaying when you need to make payment.

If you're sitting on stock you can't sell, consider making adjustments to follow the demand. As an example, during the pandemic lockdowns, people weren't able to eat out so many pubs and restaurants switched operationally to online orders, deliveries and takeaways instead.

4. Set up a payment plan with HMRC

If you think you're going to struggle to pay your tax bill then contact HMRC, explain your circumstances and they may set you up on a payment plan. They can offer extra time to pay in situations where you can't settle your tax liability now but will do so in the future.

Furlough Scheme end date

This post was created on 17/09/2021.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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