The Government has been helping many businesses keep afloat through its furlough scheme, but with new restrictions and the threat of a second wave, pressure has been mounting for the UK to extend support for businesses and reduce the number of job cuts.
The new Jobs Support Scheme has provided some comfort to business owners worried about the future. It offers alifeline for those who have had to reduce activity or capacity to ensure the safety of their workers, but are keen to maintain their key workforce to future proof their business.
What is the Job Support Scheme?
The Job Support Scheme, designed to help keep people in ‘viable’ jobs, will replace the existing furlough scheme that has been in place since March.
It will apply to those employees that are working at least a third of their normal hours (which the employer will cover) with the rate of pay being the employee’s normal pay for those hours worked. For the remaining hours not worked, the employer and government will pay one third each (the government’s contribution will be capped at £697.92 a month).
So, as an example, employees working 33% of their hours will receive at least 77% of their pay.
However, the new scheme relies on employees being required to work at least one third of their normal hours and be paid for that time by their employer. Plus, as with the furlough scheme, grant payments will be made in arrears. Therefore, the employer must pay the employee their contracted wages for their hours worked plus the government and employer contributions for the hours not worked. The employer will then be reimbursed for the government’s contributions (up to the capped figure of £697.92 per month).
Employers will be able to make a claim online monthly through the gov.uk website from December 2020, which for some cash-strapped businesses this will be a criteria they are unable to fulfil.
What else can I do to protect my business?
As we enter the deepest recession on record, it is more important than ever to ensure finances are kept in check.
In order to preserve cash in the months ahead, business leaders should take stock of their current position and consider operational changes such as restructuring and contract negotiations with suppliers.
A plan for the mid-term is absolutely crucial and being proactive could help reduce risk exposure and even boost cash flow.
Don’t let debt be your downfall
We all know that cash is King and even when a business is profitable on paper, not having the cash in the bank can have devastating effects.
During a downturn, the first thing that happens is the supply chains starts holding onto cash, paying creditors more slowly while simultaneously asking debtors to pay more quickly, squeezing cash flow and having a knock-on effect up and down the chain.
You can support the greater business economy by being flexible with your debtors, but do your research and check credit reports before extending payment terms. By only offering extended terms to customers with strong credit ratings and who are paying others on time, companies can protect themselves for the future, while offering a helping hand to other businesses in the sector that may be experiencing tough times.
But don’t let debt be your downfall, make having a good invoicing and collections system the top of your priorities list.
Have a back-up plan
If you’re heavily reliant on a particular supplier, it’s wise to start searching for alternatives to keep as a back-up in case an existing one goes under or becomes too expensive. If you’re working to tight profit margins or a tight turn-around on services, preparation like this may pay dividends should you need to find an alternative quickly.
Spread the cost of financial support packages
Following the cancelation of the autumn statement, Rishi Sunak has announced further adjustments to the financial support packages available to businesses in the wake of the coronavirus pandemic.
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.
Businesses in receipt of 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, for those businesses whose VAT payments fall in March 2021, they will now have the opportunity to spread those payments over the next 12 months, resulting in 11 smaller payments.
Taking advantage of these extensions could help you keep crucial cash in the coffers.
While the Jobs Support Scheme will provide six months of support for companies, the Government’s more permanent support measures for the industry should also be taken advantage of, if necessary. Representing the biggest reform of the UK’s restructuring and insolvency framework in over 15 years, the Corporate Insolvency and Governance Act 2020 includes measures such as a 20 business-day moratorium, allowing temporary suspension of the repayment of debts.
If the future feels uncertain for your business, it is crucial to be proactive by seeking access to additional support measures available, deciding which options best suit your business model, and taking professional advice where appropriate.