The SMEs Guide to Post Covid Recovery

Small business owners around the globe have been fighting for survival in the wake of the COVID-19 Pandemic. The most recent figures released from the British Business Bank on the 6th July 2021 show that over 1.6m businesses have received more than £79bn in government-backed loans since the start of the pandemic. These loans aimed to support the cash flow of businesses across the UK during the crisis, but now they need to be repaid. SMEs will need to rely on alternative and more flexible funding options to assist getting back on track over the next year. 

Whether in times of uncertainty or not, small business owners need to be nimble, reactive and prepared to face the constantly changing landscape around them. Planning ahead, staying on top of their cash flow, and expecting the unexpected will be of key importance for the coming months. If you are not sure what your next steps to recovery are, the following guide may help to get you back on track.

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Assess the Financial Damage

Over 1.6m UK businesses took out a government loan since last March, many of which have already started making repayments after their first year without having to do so. These business owners are in a position where they will need to look elsewhere for funding to manage their cash flow, maintain the day-to-day operational costs of running their business as well as re-paying their Covid loans as banks are not handing out any more money.

Start by assessing the financial situation - now is the time to update and compare profit and loss and cash flow statements to previous years to see how your business has truly performed over the last 18 months. Aside from the number that you can see on these statements, you will need to consider the other ways that your business has been affected. Whether you have had to cut budgets, downsize premises, or look to refinance company assets, spending a short amount of time now to compare your fixed costs with what else is out there in the market can save thousands of pounds throughout the year. 

Cash Flow Forecasting

It goes without saying that small business owners spend a huge portion of their time running the day-to-day operations of their business. It is more important than ever to stay on top of cash flow to prevent any unforeseen cash flow gaps that will only add another element of financial strain. In today’s world, being able to assess your cash position almost daily should be a priority for small business owners rather than waiting until the end of the month to see how sales performed when it might be too late.  

Understand your cash flow position - Muse Finance offers a free cash flow forecasting tool that gives you an instant view on your financial position at any time. By integrating with your accounting package and company bank account, you can see your next 30, 60 and 90 day cash flow and have the confidence to make financial decisions based on the information at your fingertips. 

In the event that you see a shortfall, Muse’s Invoice Finance product allows you to cover any gaps in your cash flow by selling your outstanding invoices directly through the app for fast deployment of funds. Whether you need to pre-emptively work out if you will have the funds to cover the cost of sales for a large order coming up or you are notified that an invoice that you are expecting payment for will be late, the App can make these headaches a thing of the past. 

Consider Funding to Recover

Even companies with significant cash reserves on hand going into the pandemic have needed to secure funding to get over the next hurdle of recovery. With most government backed loans no longer being an option, high street banks being extremely selective with who they lend to and challenger banks being expensive, alternative funding will be a lifeline for many businesses. 

Does your business require funding to boost recovery? Having a flexible line of funding like an invoice finance facility will help business owners manage their cash flow without the need to take on more debt. Whether using the line to cover any cash flow gaps in your billing cycle, service your other loans or just have an injection of cash into your business to cover any unexpected costs, Invoice Finance will play a big part in the recovery of businesses across the UK. 

As the funding of outstanding receivable invoices relies more on the credit worthiness of the debtor, even with a credit score that might be turned away for traditional finance like a loan, you may still make an excellent candidate for Invoice Finance. 

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Terms of Trade

Conducting your own credit search on a potential new customer will give you added insights into their company and director’s history that could very well alter the decision to partner with them. When times are slow, small business owners often take unnecessary risks to bring in money which can result in bad debt. Enforcing your terms of trade by restricting the credit limits that you have set, charging late payment fees or limiting work until your invoices have been paid will help control the risk of your cash flow being affected.

Review and update your terms of trade - Whether it is updating your client’s credit limit allowance, payment terms or late payment fees for slow payment, updating your terms of trade to mitigate risk can protect your business from being exposed to bad debt and cash flow gaps. When entering a new partnership with a client, ensure to have a clear trade agreement that is both understood and signed by all involved parties. 

Planning For The Unforeseen

As the coronavirus pandemic might seem like a once in a lifetime event, what you might have come to learn throughout the last 18 months may prepare you for a future crisis. 

Put a plan together - Determining a plan now to prepare for unforeseen circumstances could very well be the critical difference in the survival of small businesses should another event like Covid-19 happen again. Arranging a cash reserve, paying off debt, constantly evaluating your cash flow position, limiting non-essential spending and cutting operating costs where possible are all important factors. Adjusting to more online and remote operations have proven to be successful for companies around the world as it has allowed to streamline processes and be reactive regardless of location. Utilising these forward-thinking strategies are just a few ways in which business owners can stay nimble, make informed decisions, and keep aiming for what are the ever-moving goal posts.