Lifting lockdown: a bumpy road ahead

Tuesday February 23, 2021

What the end of lockdown means for businesses

In times of uncertainty we must follow the data – at least that is the message from the government as we look to plot our way out of a third national lockdown and the COVID-19 pandemic which has disrupted lives and businesses on an unprecedented scale.

The UK has been living in a relative state of emergency for almost a year now, so it is understandable that business owners will have been hoping for more concrete timings from Boris Johnson’s roadmap for opening up the economy through the course of the next few months. With public health rightly continuing to take priority though, the slow and phased easing of lockdown does at least offer light at the end of the tunnel, and the likelihood of better trading conditions ahead as the vaccine rollout reduces the chances of future lockdowns.

However, while the relaxation of restrictions will bring a great deal of relief across the board– the economic fallout of COVID-19 is likely to continue in the long-term. The UK economy for example, is not expected to recover to pre-pandemic levels until 2023 at the earliest and the Federation for Small Businesses expects as many as 250,000 of the nation’s SMEs to go out of business this year.

As it stands, many firms, whether open for business or not, are existing in a suspended state as we approach the end of the government’s fiscal year and, most likely, the emergency support schemes that have swollen government debt to almost £400 billion. This historic level of borrowing will need to be addressed and businesses will ultimately be asked to support themselves again in the near future, while beginning to pay back any emergency support they have received.

Notably, the low level of defaults in the trade credit insurance market in the last year, coupled with the headroom seen across invoice discounting facilities, suggests that HMRC has borne the brunt of deferred payments during the pandemic. From the government’s perspective, this is simply unsustainable and gives weight to the suggestion that it will be acting decisively to recoup the financial support provided to businesses large and small. The austerity-led policies of the 2010s were informed by overspending ahead of the 2008 crash and we can expect a further tightening of the belt again.

At the same time, we are also likely to see the wheels of the economy beginning to turn at pace over the course of the next few months – requiring significant capital for businesses to get back up to speed. However, for many, particularly those who have been forced to shut down during lockdowns, available working capital will have fallen significantly. Others will also have less resource to play with having had to make the difficult decision of making employees redundant without the furlough scheme behind them. In addition, those businesses that were previously debt-free may now have long-term amortising debt which has the potential to divert investment, which will have a knock-on impact on other businesses. Reduced investment will also hinder aims to improve productivity.

All of this points to a bumpy road ahead.

However, opportunity will continue to abound even if we are in the process of an economic reset. Many funders, traditional or otherwise, remain supportive of businesses and both equity and alternative lending markets are well-resourced to capitalise fundamentally strong recovery strategies. If they haven’t already, businesses must now start planning their own route out of the pandemic.

Our advice throughout the course of the last year has remained consistent, whichever way the wind has blown: scenario plan and keep the lines of communication open with stakeholders.

While current uncertainty is making planning very difficult, every business should develop – and maintain – a rolling 13-week short term cashflow model, in parallel with a longer term integrated forecast. With this in place, directors will be able to assess where potential pressure points lie in their operations. Management teams will need to ensure that they can maintain liquidity and be comfortable that they can pay any outstanding debts.

From here, business leaders should take steps to review how they can support their cashflow by reducing any non-essential expenditure, or delaying any planned capital expenditure. Companies facing distress may need to work with their creditors to help structure a way forward – approaching these discussions with transparency and potential solutions, and being ready to share relevant information to help in their decision-making, will only aid the chances of them being able to find workable solutions.

Above all, proactive action is key. It is a natural reaction to want to turn away from issues at the hope they will resolve themselves, but seeking advice and support as problems begin to show only maximises the time at hand to find the best path forward.

Now is the time to review, adapt and evolve. Our team of specialist advisers are on-hand to support every step of your business journey, providing integrated and tailored guidance that empowers your business to prosper in the new economy. If you are keen to assess your options, please don’t hesitate to contact us.

Levels of borrowing will need to be addressed and businesses will ultimately be asked to support themselves again in the near future. Geoff Rowley Chief Executive Officer

Related team

Geoff Rowley

Geoff Rowley

Geoff Rowley

  • Chief Executive Officer
  • Restructuring Advisory