The spread of COVID-19 is causing significant disruption for individuals and businesses across the country.
In these uncertain times, we want to help you face any challenges as they arise and try to ensure that any problems stay short term and don’t stretch into the future.
For the next few weeks we will be covering hot topics across professional services, to bring you help and advice in one hub. We welcome questions and ideas on what to cover, please email Jennifer Macfarlane.
This week we focus on looking at managing debt, cashflow, credit insurance and investment market overview.
Managing Your Debt
For Individuals
You could look at your income/expenditure and write it down. Whilst this might sound simple, when people write down expenses, they often quickly see where they can make savings.
Three-month mortgage payment holidays are an available option, as are temporary breaks on many forms of credit/bills.
If the above steps aren’t enough, you can speak to an insolvency practitioner about an Individual Voluntary Agreement (IVA) in the first instance. Another option is may be a Debt Relief Order, which is a way to have debts written off for individuals who have a relatively low level of debt and few assets.
As a last case scenario bankruptcy may be an option and the Insolvency Service is still open to process debtor petitions.
For Business
You could review your key supplier relationships and who will allow payment breaks – pick up the phone and talk – if someone goes quiet on a supplier/creditor, this is where suspicions and problems could potentially arise.
You could look at staff numbers and consider who is essential for the business and who could be furloughed
The Government are also offering VAT deferment, delays to account filing and business interruption loans.
You could review your own debtors – who owes you money? Can you shake that tree to get some cash in? Many are struggling but that doesn’t change a debtor’s liability to pay.
If the company just needs breathing space and can trade through with the agreement of creditors, a Company Voluntary Agreement (CVA) may be appropriate and can be structured across up to five years.
It’s important to remember that Administration is a recovery process and not designed to kill a business. If there’s a viable underlying business that is strangled with debt, a Pre-Pack Administration may be appropriate to keep the good bits and leave the negative behind, whilst preserving jobs.
If the company just cannot survive, Liquidation may still be an option and can be processed by an Insolvency Practitioner. Before liquidating, it might be important / appropriate that the directors consider making certain payments, e.g. to themselves or connected companies when insolvent, to avoid personal liability.
Before any of the above steps are taken, you should speak to your professional advisors to explore all options as the right one will vary from case to case. We are here to help and can signpost you to the best support.
Cash Flow
Cash flow planning is key for effective management of all businesses. At this time of uncertainty during the COVID-19 Hiatus, it is more critical than ever.
Cash is the lifeblood of all businesses, and at this period of uncertainty, it might be appropriate for business owners and their finance teams to understand what cash is due to go out of the business and then make deliberate decisions about their payment.
The biggest unknown of course is what cash will come in. To an extent that can be influenced through effective credit control procedures, but not with high levels of certainty.
You could prepare a simple spreadsheet with today’s bank balance as your starting point and then plot through to the end of September 2020 by day. Include typical monthly payment sums and dates for debtors, suppliers, wages rent etc. Make a best, but prudent, estimate of what cash will be collected, when and from which customer. This will help to create a ‘base line model’ which can be used to help decide on payments, identify troughs in your business that need management and to help you to proactively manage the business. Help and advice is available and we can signpost you to the best support.
Credit Insurance
Given the significant “uncertainty” around the business/commercial/corporate world, the Credit Insurers are currently looking at their exposures and are trying to ascertain what could be the worst-case scenario for UK Plc. They are of course doing this with a view to supporting their clients as best as possible, but we must be under no illusions here and accept that as Company Insolvency increases, the appetite and availability of cover will reduce. Some Insurers have already made the decision to remove/reduce limit cover within certain sectors and, whilst not all the Insurers are following suit, the possibility that they might is very real.
On the positive side, where cover is maintained we are seeing Insurers trying to help where they can. New policy endorsements have been introduced whereby clients benefit from increases in overall flexibility on debtor Payment Terms (increased Maximum Extension Periods), Late Payment Reporting, and Debt Rescheduling – plus some Insurers are now offering Premium Payment holidays for struggling businesses.
Whether you have seen cover removals/reductions, are struggling to keep up with premium payments, or are eager to see what cover could be available please get in touch and we are happy to direct you to the appropriate guidance, advice and support.
Investments – Market Overview
Global stocks markets have moved higher over the last week, following the huge economic, business and individual support packages, announced by governments around the world. This news comes as we draw to a close the most dramatic quarter in society and financial markets, since the Financial Crisis. The economic impacts of the COVID-19 outbreak continue to be felt. In the US last week, it was announced that the number of Americans filing for unemployment has surged to a record high, as the economy goes into lockdown. Nearly 3.3 million people registered to claim jobless benefits for the week ended 21 March, according to Department of Labor data.
Back in the UK, the Chancellor, Rishi Sunak, announced last week further support for millions of self-employed individuals. Many affected self-employed workers will receive direct cash grants, though a UK-wide scheme, to help them during the coronavirus outbreak. All of this creates uncertainty on many fronts, but our consistent message during these unprecedented times is in the face of market turmoil, avoid making impulsive decisions. No one knows what the future holds and understanding the past can help us avoid decisions that may cause far more harm than good to a portfolio’s long-term value. Our advice is to remain patient and stay invested in a well-diversified portfolio, which is regularly reviewed and rebalanced, and maintain your asset allocation in line with your investment goals and risk profile. Not only historically, but in recent weeks, it has been shown that markets can rise quickly from sudden falls and impulsive decisions can adversely impact your portfolio performance.
As you would expect during these difficult times, we are available to discuss any questions you may have, be this for either existing or new clients requiring a review of their portfolios.
