Road map to recovery … Look out for the pot holes!

The COVID 19 pandemic has disrupted lives and businesses on an unprecedented scale and the UK has been operating in a relative state of emergency for almost 12 months.

If the economy was a motorway, the overhead matrix signs will have been constantly flashing a wide variety of warning signs for over a year now!

Amongst all the uncertainty, the Government has been plotting a way out of the third lockdown and has just announced a road map for opening up the economy over the course of the next few months.  Although many business sectors were pressing for more certainty on timings, it is clear that public health must continue to take priority until the vaccine rollout is nearer completion and a slower, phased easing of lockdown at least offers some light at the end of the tunnel.

 Traffic Management Measures in Force… Still

While the relaxation of restrictions is most welcome, the economic fallout is likely to continue into the long term and significantly beyond the end of restrictions.  We have already seen significant redundancies over the last 12 months and the UK economy is not expected to return to pre-pandemic levels until at least 2023.  The Federation of Small Businesses has also suggested that it expects as many as 250,000 SME’s to go out of business this year.

Many businesses, whether currently able to operate on a full / reduced scale or simply not able to trade at all, are existing in an artificial state with the protection of the restrictions in place on debt enforcement actions and winding up petitions, debt forbearance and emergency support schemes in place. 

 Congestion Ahead

Such support schemes have swollen the government debt to almost £400 billion, a historic level of borrowing, which is unsustainable in the long term.  Ultimately, the Government will have no option other than to discontinue this support in the near future and businesses will soon be asked to stand on their own two feet once again.  This will also bring the beginning of businesses being asked to pay back any emergency support they have received in the form of BBL and CBIL loans, together with the VAT deferment payments.

The significant low levels of default in the funding market suggest that HMRC has borne the brunt of deferred payments during the pandemic.  The Government exposure is further exacerbated by the level of CBIL and Bounce Back Loans and we are already seeing a lengthening of the repayment terms under these schemes. This is, however, simply unsustainable and gives weight to the argument that HMRC and Government will actively look to recoup the financial support provided to businesses large and small and it appears almost inevitable that we will see a further “tightening of belts” and period of austerity once again.

Warning – Variable Speed Limits Ahead

On a more positive note, we will also likely see the wheels of the economy beginning to turn again over the next few months which may require significant capital for businesses to get back up to speed.  However, this isn’t as simple as turning on a switch and will take time and is likely to be phased.  For many, particularly those who have been forced to shut down entirely during the lockdowns, available working capital will have been eroded or fallen significantly, causing those businesses to stall on re-start.

Others will have less resources available and will face difficult decisions of making redundancies once the furlough scheme is withdrawn.  However, more pertinently, there will be previously debt free businesses that may now have long term amortising debt which has the potential to divert investment, which will have further knock on effects on other businesses.

Nonetheless, opportunities will continue even during a period of economic uncertainty.  Many funders remain supportive and are well resourced to capitalise and assist with recovery strategies and if they haven’t already – businesses must now start plotting their route out of the pandemic and accelerating away from the problems of the last 12 months.

The current uncertainty will remain for some time which makes planning all the more difficult but short term planning and forecasting will be vital to identify potential pressure points and issues within their operations.  Liquidity planning and liaison with all stakeholders to the business will be more crucial than ever.

Business owners will inevitably review how they can support their cash flow by reducing non-essential expenditure or delay previously planned capital investment.  Companies in distress will have to work with key suppliers and creditors to help structure the future and keep things on an even keel.  Approaching these discussions with transparency and possible solutions will aid the chances of achieving a workable outcome.

 Plan Your Own Business Journey

Remaining proactive is the key and not to run away from problems in the hope that they will go away!  Seeking help and advice along the way will be crucial in seeking the best route forward.  Businesses, just like vehicles, on the road to recovery will still need regular maintenance and, on occasions, the need to call on a break down and recovery service.

Now, perhaps more than ever, is the time for constant review?  Our team of specialist advisors are on hand to help along the way.  If you are keen to assess your options please get in touch.