From cashflow to growth, getting businesses back to work after lockdown
The government is taking "modest" steps in easing lockdown restrictions, Communities Secretary Robert Jenrick has said. From today in England primary schools will start to reopen and people can meet in groups of up to six. And vulnerable people in England and Wales will be able to go outdoors for the first time in months. Meanwhile, the UK has exceeded its target to increase coronavirus testing capacity to 200,000 a day by the end of May.
As lockdown restrictions begin to lift slowly across the UK, businesses are beginning to prepare for a new working environment. Government-backed loans, furlough and global supply chain delays are some of the challenges being faced by businesses in this unprecedented time. That is why Reece Tomlinson, Founder of RWT Growth, corporate advisers for the global SME economy, has given his tips to small businesses on how to survive beyond lockdown.
He commented: "The environment that businesses will be operating in after lockdown will be completely different from any experienced before. It will be different from a recession as working environments will change, retailers will have to adhere to social distancing measures and it may result in mass unemployment. Here are my tips to help business owners adapt to the post-lockdown economy.
Managing cash flow is paramount:
Every effort needs to be made to ensure the SME is not burning unsustainable levels of cash, which could otherwise cause the SME to be forced to close its doors. Receiving support in the form of this loan or debt finance should not change the need to improve the firm's cash flow.
In almost every western country, interest rates are near zero with numerous government funding options to help ensure businesses remain open and operating. In the UK, the government CBILS program can provide funding up to £5m GBP and can be used to acquire competitors and assets of interest. This program is largely risk-free for lenders as the government will guarantee 80% of the debt, which means the ability to access debt for strategic M&A deals will be profound.
Lower your costs:
When a business is facing cash flow issues, lowering costs is a key element in turning the situation around. Now, when some firms are experiencing a dip in profits, action needs to be taken to correct the underlying problem. Regardless of the size of the business, discretionary and non-crucial costs can be decreased or cut out entirely. The aim is to cut costs so the company is generating positive cash flow again, without detracting from the core of the business and its ability to provide its goods or services.
Examples of discretionary expenses include non-immediate ROI (return on investment) purchases, printing, and employee perks. As a guide, businesses should cut expenses that their customers would never see versus those which could impact the customers’ experience.
Look to scale through distressed companies. Distressed opportunities are assets and entities that are experiencing financial or operational distress, default or in the process of bankruptcy. This represents a real opportunity as many SMEs are in states of distress.
These opportunities represent the best single method for acquiring large scale value with a comparatively minimal spend as they can be acquired for large discounts to their actual value.
Scale through creative deals. Historically, the majority of M&A deals required cash levels that were equivalent to 10% to 20% of the deal value with the remainder of the deal being comprised of some form of debt. This was due to the fact that for many healthy SMEs they would not sell their company without an attractive offer. However, given the impacts of COVID-19 and the points I have brought up in, there has likely never been a time in history where M&A deals can be made more creatively than there is now."
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