Trading after furlough: can you afford redundancies?

Andy Taylor
X The Business Desk

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From July the government’s contribution to the furlough scheme will reduce to 70% and employers will have to contribute 10% for hours not worked. By August it goes down to 60% government contribution and 20% lies with the employer – costs some businesses won’t be able to afford.

The problems many businesses are facing at this time are simply a product of the current trading environment and cannot be avoided. However, it is possible to mitigate the issues by improving productivity in other ways.

If you’re concerned about cash flow there are three places to start: salaries, property and finance.

Salaries

Often the biggest cost to any business, it can be easy to think that cutting headcount is a simple way to saving money. However, you need to calculate the costs of redundancies. Profile the team – which, if any, of these roles could be automated, consider how long they have served with the business, what pay will they be entitled to and how much capital will you need to honour these payments? Is there a better time in you trading cycle to make redundancies when cash reserves are higher?

So many businesses fail to pre-plan the redundancy process, leaving it to the last minute, and finding themselves insolvent as a result.

Property

If your workforce is at the right level and redundancies aren’t a viable option for your business consider reviewing your property portfolio. If post-Covid (or during the pandemic) your property is no longer fit for purpose, then consider your options. Review your contract terms; when are the break clauses in your contract, can you legal advisor help you renegotiate rent rates as a temporary stop-gap?

If the property is owned by your business freehold, release equity by selling the property and becoming a tenant.

Financing

So often there are simple ways of refinancing that can save businesses from insolvency. Such as reviewing the rate of interest on the business overdraft – is there a better deal to be found elsewhere?

To unlock cash in order to get the business fulfilling orders, you could consider invoice finance to support the supply chain.

Are there assets in the business such as plant, machinery or stock that you can get assets-based finance on to raise money?

Act now

There are many business in a state of flux; with companies currently in ‘hibernation’ thanks to government support and legislation in place to protect them from insolvency. But for businesses to survive longer term they will need to wake up from their slumber and act now to avoid the common mistakes made by businesses before them.

Every business is different – sometimes a combination of actions is required to prevent insolvency – so if you’re concerned about cash flow get independent advice that views the bigger picture for your business.

Andrew Taylor, is partner and head of restructuring at Shakespeare Martineau.

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