Helping your business survive the recession

The Chancellor, Rishi Sunak, has said that he believes the post-Covid period will see the UK heading into a deep recession. There will be increased unemployment and, with money in short supply, business will be slow in every sector. You may be facing plunging revenues and a slowdown that could take a year or more to be over.

As a small business owner, you may be forced to make drastic moves to survive.

Start preparing

As we come out of recession, it's easy to assume that it will be back to business as usual. But, in fact, you could be in trouble as soon as you open the door. Customers and clients will be watching every penny. They may be more reluctant to spend – and that will mean problems for your business and for your cashflow.

You need to start preparing for a potentially reduced income and reduced cash flow now.

The first step is to cut or reduce your monthly cash outflows. Where are your big costs now? Call your landlord and see if you can negotiate a lower monthly rental on your premises. Your landlord is running a business too, and knows the pressures – and that they will be better off having you as a tenant for the next few months than having an empty unit and no income – and no prospect of getting a new business in to take your place.

Look at all your utilities like water, power, internet, and mobiles.

Then, call your current vendors’ competitors and ask what kind of deal they can offer a small business looking to save money.

Let them know you’re willing to switch if they can give you a big discount. The frontline sales reps may often have unadvertised discounts they can offer new customers to secure a contract.

But don’t stop there. Once you know how much you could save by switching, call your current vendors. Get them to match the offer. You might not have to actually have to go through the trouble of switching – or you might get an even better deal to persuade you to stay.

You also need to cut out the extras. Little things, like the magazines in your reception and free drinks, eat into your bottom line. Before you bring in anything, ask yourself – does the business really need it? Can it run without it?

But what about the things you do need for your operations? Tools and equipment will cost much more than a daily paper on the front desk. You might find it hard to do without the equipment you need.

But there are ways to cut the costs. From a new computer or production tool to office furniture, you can lease instead of buying. You will end up paying more in the long run, but your priority must be your immediate cash flow.

You should also consider buying secondhand - in a recession economy, there may be plenty of used assets available from recently-closed businesses. It is almost always possible to arrange finance for secondhand assets – although the vendors trying to sell you new gear will never admit it.

Plugging the small holes in your cash flow is vital, but you need to get down to the fundamentals of your business.

Look at your relationships with suppliers. What are your current payment terms? If you can negotiate 45-day terms instead of 30-day terms, you could have cash in your account for an extra 15 days and that could be crucial in your survival.

Of course, your suppliers will not want to be generous, but you can point out that they need your business in a recession. If they still won’t extend payment terms, see if they will give you a discount for paying early.

Getting money in faster

With your cash outflows reduced, it is time to look at ways to get it coming in quicker, so the next step is to increase and speed up the inflow of cash.

Stop giving your customers free credit at the expense of your company’s survival. You need your money to keep your business afloat – not in your client’s bank, working for them.

In easy times, it’s tempting to let a customer slide on paying their invoices on time. But you don’t have the luxury of floating free credit to your customers in a recession. If the customer is having trouble paying your bills, you are probably competing with other collectors who are facing the same problems. Get to the front of the line by being the squeaky wheel. Calling every day - and perhaps more than once - can help you get paid faster, because they don’t want the hassle.

Get cash in hand by offering your customers a discount for paying sooner. A common discount is 1-2% off for paying within 10 days instead of the normal 30 days.

You can also use the recession conditions to bring in new business if you are determined enough. Remind your customers that your low prices are even more important during the recession. If you’re not the cheapest, but you offer a premium product or superior customer service, remind your customers of the exceptional value you offer — and that price may not be the most important factor when determining the total cost of ownership.

Getting some help with getting paid

Long waits for payment are endemic in some business sectors. You need to get paid faster in recession when every penny counts, and if you have tried and failed to get customers to pay faster, it could be time to consider Invoice Finance.

Technically, Invoice Finance lets you use your unpaid invoices as the security for lending. But in practical terms, it means that you get paid up to 80% of an invoice as soon as you issue it, and the remainder - less the lender's costs - when your customer pays.

It can be a major help with cash flow in good times as well as bad, keeping your payments in step with the work you do, and ensuring that your cash flow stays healthy. With some arrangements, you can leave collection to the lender's professional credit management team, ensuring that they can receive a courteous – but professionally firm – reminder that they need to pay up, with no need for you to lift a finger.

There are several types of Invoice Finance arrangement and, at Rangewell, we can help you find the most appropriate one for your business.

Needing a solution to cashflow issues? Explore your finance options to help your working capital and cashflow

Look at your business

Running a business during a recession may mean your priorities change, including the way that you operate.

With this in mind, you might want to look at cutting your inventory costs. You don’t need a stockroom with shelves crammed waiting for that big order – your own suppliers may be happy to oblige if that order comes – otherwise you are simply tying up cash you need elsewhere.

Cut your inventory levels, and look at increased supplier deliveries and smaller order values with each shipment from your supplier.

You could also look at the potential for raising revenue from your stock. You could try to liquidate the worst-selling products selling them at close to a loss simply to raise cash – but you may also be able to raise cash on the stock – and keep it – with Inventory Finance. Funding secured on your stock can be an effective way to raise funds which can be a big help in your plans to keep your business afloat.

Look at your existing finance agreements

If your business has borrowed to acquire equipment, buy in stock, fund expansion plans or simply to support cashflow, you may have a severe problem now. If you already raised finance for your business through lending, you may now find that the repayments on those loans are adding to your cashflow burdens. 

The loans you took out to build your business could now be in danger of dragging it under.

The simple fact is that you - and your lender - looked at your ability to make repayments on your existing loans based on your normal trading patterns. Your monthly turnover would be estimated from previous months and, with the economy growing slowly but steadily, many decisions were made on an optimistic basis. 

The coronavirus crisis and the lockdown mean that the income you budgeted on having is simply no longer there. Servicing the loan repayments may leave you with little left over for your other commitments. 

You may already be eating into your reserves, and that is not a situation that you can allow to continue for any length of time. Your lender is fully aware of the problems you are facing as a business. They will not want to be responsible for driving your business under. 

However, although they may be sympathetic, they also have a business to run. They will need to know that they will be paid if they are not to call in the loan or the security on which it is based.

If repayments have become impossible, you may be able to approach your lenders and discuss the possibilities of a repayment holiday.

This basically involves not making the usual repayments for a month or two until your business is back on its feet. This can only be done with the agreement of your lender, and will require you to extend your loan term. In most cases the interest you are being charged will continue to be added to your loan account during this time.

At Rangewell, we know the lenders who may be most receptive to this idea and we can help you approach them to see if it is possible in the case of your current arrangement. This may require putting together a business case for your lender, which will demonstrate that your business will be in a position to start repaying again once the crisis has passed. 

This could be a reasonable solution, which is ultimately better for your lender and for you and your business, but some lenders may be less accommodating.

Some may be prepared to negotiate terms such as an interest-only period for your repayments - but others might not make any compromises at all. 

How refinancing might help

If your current finance is with a lender who will not look sympathetically at your request for a payment holiday, it may be possible to arrange Refinancing for your current arrangements. Call us at Rangewell. We can find lenders who may be able to offer the funding you need, with better rates for longer terms - allowing you to pay off your existing lender and start again with a new, and more affordable loan.

How we can help

At Rangewell we understand that businesses can - and will - find themselves facing adverse trading positions over the next few months. We know that the solutions are to be found - and if your business is basically sound, it should be possible to find ways to support your cash flow until the economy picks up again. There are many solutions to consider, and many lenders who may be willing to provide the funds you need.

We are experts in business funding and we can help you, not only find the solutions you need but help you find them at the most competitive rate. We can work with you to find solutions, and we know the lenders who are able to take a sympathetic view of applications from businesses facing difficulties

The lenders we work with look at the whole business case presented to them for finance, and having a business downturn in the current environment need not prevent you from getting the funding you need.

We’ll work with you and help you present your case to lenders. The chances are, even if the recession is leaving your business on the ropes, we can help find the funding that could help put you back in the ring.