COVID-19: Protecting your business

words: Patrick Abel, Hart Shaw LLP

Although this will be a busy time for funeral directors, cash could still be in short supply so we must take steps to make sure we can operate successfully

As the COVID-19 pandemic tightens its grip on the UK and world economies, it is important that all businesses move into survival mode in the short term.

To some extent, the current crisis should be a buoyant time for funeral directors, as tragically the country will experience a spike in death rates over a very short period of time. However, whilst this will generate lots of potentially new work for the sector, it does not necessarily mean that the cash will follow. There will be millions of people experiencing short-term cash flow difficulties as a result of being put on short-time working or ultimately made redundant. Therefore, whilst funeral directors may be sending out lots of new invoices to the relatives of the bereaved to cover the costs of a funeral, families may be slow to pay, or even default fully in some cases.

There are several practical steps that you can take to protect your business at a time like this. The old adage “cash is king” is certainly true at the moment, therefore the starting point for all of us should be “what payments can I avoid?” What cash can I bring in quickly and then manage cash flow closely to ensure essential suppliers are paid, although maybe stretching credit terms a little? It may be wise to consider asking for a temporary overdraft facility with your bank to give you some headroom and importantly make sure that you produce short-term forecasts that include a number of “what if” scenarios. This will allow you to put in place contingency plans and understand the likely cash requirements for your business over the next three to six months, maybe longer.

If you have existing bank borrowings, such as a property loan, hire purchase or leases for vehicles, make sure you speak to your lender to see if you can get a capital repayment holiday and maybe have interest rolled up rather than paid for a period of time, say three to six months. At the moment, the Government plans appear to be adopting a three-month timeline to contain this outbreak. Your lenders will be mindful of the situation and therefore should be in a position to support you, as failure to do so will put their customer base in serious jeopardy, too.

The Government has quite rightly offered to support as many people as possible, through a combination of loans to companies, including the new Coronavirus Business Interruption Loan Scheme (“CBILS”), and grants to provide support for employers to subsidise wages for furloughed employees in the form of grants rebated via HMRC to cover 80% of those wage costs where there is no work for them to do. It is probably unlikely that funeral directors will find themselves short of work, but this is available if they do.

Given that some funeral directors could find themselves overtrading due to demand, it may be wise to consider applying for a CBILS loan. The loans range from £5,000 to £5m and are interest-free for 12 months (government pays the interest); other features include capital repayment holidays of up to 12 months, no arrangement fees and no early repayment fees. Term loans can be up to six years. CBILS is intended for businesses that are impacted by the pandemic and does cover short term cash flow support as well as capital additions.

It could be that extra staff are needed, more vehicles, additional temporary premises, etc. The scheme is suitable for all these things. It is meant to be used where the lenders do not have enough security to support, therefore it must be borne in mind that banks will seek a debenture firstly and in some cases personal guarantees (PGs), although it does appear after some initial pressure banks have been made to remove PGs for loans below £250k.

The first port of call for businesses looking to the scheme should be their existing banks; most banks will only service existing clients. However, if your bank is not willing to support you, there are other providers. Please contact your adviser or go to the British Business Banks website for details.

Other things to consider will be the impact on your business due to sick leave caused by either staff members contracting the virus or having to self-isolate as a result of having potential symptoms or a family member having them. Therefore, the Government has introduced legislation to allow small and medium-sized businesses and employers to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The Government will refund the employer up to two weeks’ SSP per eligible employee. Eligible employers are those with fewer than 250 employees.

Further support is available for small businesses that pay little or no business rates. Where businesses qualify for Small Business Rate Relief (SBRR) i.e. rateable value below £15,000 or Rural Rate Relief, they will receive a one-off grant of £10,000 to help meet their ongoing business costs such as rent. The grants will be administered by the relevant local authority and no application is required.

All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time to Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities. Given the current circumstances HMRC are likely be more lenient on Time to Pay. Interest and late payment penalties can also be waived.

All businesses can now defer VAT due between 20 March 2020 and 30 June 2020 until the end of the financial year. No application is required, it is an automatic offer, however, it is advisable to turn off direct debits to prevent VAT being collected automatically.

For unincorporated businesses, income tax payment due by 31 July 2020 can be deferred to 31 January 2021. No application is required for this and no penalties or interest for late payment will be charged in the deferral period.

Other practical steps that funeral directors need to consider will be the potential shortage of supplies caused by either lack of raw materials or demand outstripping supplies for coffins and other consumable items. It is understood the supply base is building in capacity in anticipation, but shortages could lead families of the deceased to shop around in the event that individual funeral directors can’t deliver a timely service or are unable to offer suitable coffins etc. Therefore, building in supply chains that are robust will be important and if stocks are needed to be built this will put further pressure on cash flow.

There is a risk of increased absenteeism as a result of the virus spreading, which will add pressure to already stretched funeral directors.

Added value and added sales associated with funerals and cremations such as flowers and printing may be in short supply as florists etc are not classified as key workers, thus revenue will be lost as a result.

So, to conclude, cash is king, therefore make the most of the free or subsidised initiatives on offer at the moment to preserve your cash and ensure a robust plan is in place and financial forecasts completed to allow you to calculate your cash requirements. If a cash need is anticipated talk to your bank, other lenders and advisers at the earliest opportunity so that you can plug it by putting an appropriate funding package in place on time.

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