Covid 19 – Business in lockdown
20-49 employee companies struggling
There are more than 80,000 SMEs employing between 20 and 49 and we are looking at the challenges they are facing since the Corona virus lockdown.
They play a key role in the UK economy in terms of employment and GDP.
Businesses Employment Turnover Businesses Employment Turnover
1000s 1000s £bn UK UK UK
211 4,117 629 4% 15% 15%
Let us take a look at a motor dealership employing 30. An established business with strong local support and a well-developed internet arm: it is at a standstill.
The workforce has been furloughed and this is where the first of many challenges became apparent. Sales personnel are on a basic of £13,000 a year but a couple receive £100,000 a year with commission included. Seeking HMRC guidance on whether they could be paid up to the £2500.00 a month maximum has produced no definitive answer as I write.
There is a stock of 250 motor vehicles that needs regular attention. Starting up, moving cars around so the brakes do not rust up, regular cleaning to stay presentable. Come the end of the lockdown it is highly unlikely that families, outside of those receiving regular public service salaries, are going to rush out and buy a replacement vehicle.
So the stock in trade not only is losing its value but may not be disposable when the lock down ends. More often than not there is stocking finance that needs servicing too.
A loan facility of £500,000 is available under the CBILS scheme, repayable over 5 years and charged at 3.5%. It might be a good idea to take the loan if there was a clear picture as to what lies ahead but faced with such an uncertain future, do you want to burden a family business with such a testing commitment? And what happens if you cannot meet the repayments, say two or three years into the term? Was it worth going through all of that?
Add to this consideration that tax rates will have to rise to help government refill its coffers.
Put simply, is it better folding the business right now? Nobody can force you to. Winding up orders and statutory letters of demand have been rendered void in law in respect of commercial rents owing for less than 90 days.
Business bank loans are event driven but most of those events are triggered by a positive development. Covid 19 bank loans are taken out of a desperation to survive the awful situation that has been visited upon us and will represent a burden on future liquidity, trying to make up ground that many will feel they never should have lost.
It is not in the nature of the entrepreneur to just walk away and certainly not to lose thousands in real value or sweat equity that has been accumulated over many years.
Some equity houses are circling, the parallel with vultures is unavoidable but the difference is that whereas those birds feast on corpses, the equity houses could bring a future with them: beware the terms. There is far too much highly geared debt, donning the wolf in sheep’s clothing disguise, of convertible preference shares that prove the reality once eschewing the burden of a CBLIS bank loan at 3.5%.
So where do we go?
We remember the philosophy that placed us where we were just before the Covid 19 crisis erupted. It did not happen by accident. It happened because we made the right decisions: because we faced down and overcame challenge after challenge. It happened because we are winners.
Think clearly. What are our options? How is everybody else getting by? Who that needs us must share the pain. What do I want out of life on the other side of this?
Three month’s deferrals or reduction of rent, interest charges or directors’ salaries, can make a difference. Talk to your biggest customer, it may not welcome the thought of a critical supplier being hamstrung. Talk to your stocking finance provider rather than borrowing more money to pay its interest charges.
We are all in this together. We need to work with each other to build a future on the other side. The government is keen to see employment and businesses remain robust. If it is prudent to reschedule the repayments on the bank loan if they are proving onerous undermines the original purpose of the advance, maybe this could be written into the terms.
Talk to your accountant or professional advisor before making any big decisions: the right decision is important but you can only make it based upon the facts available at the time.