Post-Lockdown Liquidity Squeeze – Are You Ready?

As the local economy and the country as a whole starts to slowly emerge from lockdown, we ask “How prepared are East Anglian businesses?”.

Well managed companies have been using the last few weeks wisely, they have been shoring up bank facilities, applying for loans where needed, furloughing staff and re-confirming orders and sales pipelines with customers to gather as much visibility as possible in a very uncertain environment.

Some have used the downtime to prepare new marketing materials and have even been quite creative in expanding into new sales channels.

Others have used the space to reconsider their long-term strategy to take cost out and consider minor or major restructuring of their business.

Those that have taken action and embraced change will thrive.  Those that have been frozen in a state of limbo may struggle to survive.

There is a liquidity squeeze coming:

– The generous furlough scheme will gradually come to an end over the summer;

– Government supported bank loans will soon have been issued (or rejected!) and we think further support post-summer is unlikely;

– Debtors may demand longer payment terms in order to avoid insolvency;

– There will be increased pressure from creditors to pay overdue bills; and

– If redundancies are needed to downsize, the upfront cash cost can be significant.

Many of these issues may occur simultaneously over the summer months and just as businesses are trying to fully re-start and the economy is starting to move again, companies in our region could be hit by further cash shortfalls and liquidity problems.

To mitigate and minimise any impact, business owners need to act now and focus on one key tool – COMMUNICATION.

– Communication with fellow directors and shareholders – reporting and discussing regular and reliable financial information will allow the Board to make timely decisions, to seek help early if needed and take decisive action.

– Communication with your bank – open and regular dialogue with your lender is essential. It maintains credibility and trust and provides you with the best chance of raising additional borrowing even if you don’t need it right now.

– Communication with creditors – they may not like it, but doing a deal to pay outstanding balances over time will be preferable to them losing a customer and losing the cash receipt altogether. Don’t hide away and ignore creditor pressure, pick up the phone, do deals with your creditors and stick to them.  HMRC, landlord, HP providers and trade creditors all understand what has been going on and will prefer to be paid over six months than not at all.

Whilst these may all seem like quite obvious things to do, some people have been shying away from open dialogue and making difficult decisions.  This will not work and taking ownership and sharing of any cash issues is the only way to gain support from key stakeholders in the medium term.

If you have not fully prepared for the liquidity squeeze, time is beginning to run out, but it is not too late.  Seek help, take advice and make a plan to release cash pressure even if you don’t need to implement it right now.

Those that are well prepared and have used this time wisely will bounce back much stronger than the competition.