Is the furlough extension really the answer to surviving lockdown 2.0?

The government has announced an extension to the furlough scheme until March 2021 – but is this really enough? While it’s good for workers – is it going to benefit all businesses, or will it just delay the inevitable?

A long winter ahead

The furlough scheme will continue to pay employees 80% of their salaries, up to £2,500 – this includes the opportunity to rehire anyone made redundant after the 23 September and put them back on furlough.

The chancellor said the scheme will “give businesses security through the winter” – alluding to a tough next quarter.

Extending furlough will be a relief for many workers, but for employers having to pay up front and claim back funds, as well as maintain additional overheads all whilst not making a profit – it’s time to take a long, hard look at your business and consider how you can keep cash flowing, survive the long winter and thrive in the spring.

What else can I do to protect my business?

Cash – cash – cash! Reduce risk exposure by being proactive in your short to medium term financial planning.

It is important to be alert to issues such as surplus stock, redundant services, and neglected facilities as well as taking the opportunity to pivot your business in line with the changing economic landscape.

Keep a close eye on your business, look out for the signs of stress and be prepared to make brave and often difficult decisions.

Don’t let debt be your downfall

Many of your customers will be looking to negotiate payments terms and while being flexible with your debtors can help support the greater economy and future relationships it’s really important that you do your research and check credit reports before extending payment terms. If you’re looking to work with a company with a poor credit score consider asking for a personal guarantee.

Don’t wait for your payment terms to be breached before checking with your client that your invoice has been received and is being processed for payment. As soon as you have delivered your goods or service, check with the client that they are happy and note any comments to provide a detailed record should you experience problems down the line.

Consider billing some customers upfront or asking for a deposit. Collect the cash and make use of the deferment of VAT options to pay later.

Source a second supplier

If you’re reliant on a particular supplier, it’s wise to explore alternative sources to avoid the risk of sudden price increases or potential disruption to your supply chain should that supplier collapse. If you’re working on low margins or a tight turn-around on delivery of services, you will benefit from advance planning should you need to find an alternative quickly.

Take advantage of government extensions

The furlough scheme extension is ideal for those wanting to hold onto staff who have the skills you need to take your business forward when things pick back up.

If you are in receipt of the Bounce Back Loan, you now have longer to repay taking the maximum repayment term from six years to 10 years, essentially halving monthly repayments. There is also the opportunity to suspend all payments for six months in very specific circumstances.

Those receiving a CBILs loan will have their guarantee period extended to 10 years with more time to pay.  The deadline for these loans is the end of 2020 and there are likely to be additional schemes announced in the New Year.

The Chancellor had previously announced the deferment of VAT bills and those businesses whose VAT payments fall in March 2021 will now have the opportunity to spread those payments over the next 12 months.

Changes to the Corporate Insolvency and Governance Act 2020 (CIGA)

Your business may benefit from the regulations issued by the Government to extend the period of applicability of certain temporary provisions introduced by CIGA at the outset of the pandemic, to aid struggling businesses.

These include extending the restrictions on the use of statutory demands and winding up petitions until 31 December 2020 and the extension of the prohibition on termination of supplier contracts by reason of insolvency until 30 March 2021.

Talk to an independent professional

Uncertainty can bring about intense emotions – taking professional advice will help you to view your situation clearly and help you to make rational, informed decisions to protect your business’s best interests and create a sustainable future.

Sheena Tandy is a legal director and insolvency specialist at law firm, Shakespeare Martineau.