The end of furlough and support schemes: what happens next?
As the government support that was introduced during the pandemic tails off, businesses need to properly prepare for what is going to happen next. After an unprecedented 18 months at the helm, there are lots of variables for business leaders and owners to consider including planning around their people, cashflow, loans and tax. Chris Newell, a Managing Director in our Restructuring & Insolvency team looks at the key issues.
The key point to remember is that the prospect of any form of extension to these support schemes is remote. The vaccine rollout has been successful to date and even though Covid-19 cases have risen again there is increasing positivity in the business community and the economy is ticking up.
Only as furlough runs down towards its eventual withdrawal at the end of September will we get a true picture of the jobs market. For industry observers, the current situation is a fascinating one. The leisure and retail industries have ‘opened up’ but they have really struggled to recruit. Many of these firms have seasonal business models and can expect a spike in trading through the summer, but they need to plan for winter.
Meanwhile, we are hearing that a number of people that are on furlough have taken second jobs, and they're either earning more money now or have greater security. It will take some time to unwind all this. I think the truth is that many jobs that have been preserved through the pandemic effectively no longer exist, so there is going to be a climate of redundancies.
Company bosses must be prepared. That means taking a close look at their cashflow forecasts which can help them set out a range of scenarios. Then they need to get good advice and fix their costs accordingly. If they need to reduce headcount, they must not forget there is a cost associated with that. It is easier to make tough decisions sooner rather than later.
Loan repayments add another layer of complexity. The government covered the first year of interest payable for the Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme (CBILS) but now firms are having to contribute. Some of these companies are in sectors that haven’t bounced back as quickly as they would have liked. The Chancellor, Rishi Sunak, devised the Recovery Loan Scheme as a bridge back to normalised lending from CBILS and others. The problem is that so many businesses have a lot of debt on their balance sheet already, so taking on more is an issue.
Meanwhile creditors have not been able to take any action to pursue their debts because companies are protected by a moratorium on winding-up orders that has been extended to September. There is a lot of pent-up demand here and I think there will be a slew of legal actions later in autumn.
There is also the taxman to consider because many companies have built up arrears. In the past, such as in the aftermath of the banking crisis, HM Revenue & Customs has been incredibly supportive. There is no reason to think it won’t be again. Kwasi Kwarteng, the Business Secretary, has said that the authorities will take a “cautious approach” to clawing back monies. It will be a failure to engage that leads to enforcement action. Time to Pay schemes are being put in place to stretch debt over many months but what HMRC won’t do is apply debt forgiveness!
We have followed developments closely at Quantuma. Everybody thinks that we have been incredibly busy, but the government support has pushed back some of the projects we expect to be involved in.
We are typically introduced to a new situation by an accountant, solicitor or company funder. Once we have spent time with the directors to understand what their business does and what the issues are, we prepare a range of options that are available to them. These might include raising further funding or formal restructuring options such as insolvency or administration.
Only when it has confronted its problems can a healthy company emerge to take advantage of what we hope is a growing UK economy going into 2022.
We have produced a three-part video series called Building financial fortitude where financial journalist James Ashton talks with Chris Newell, a managing director in our Restructuring and Insolvency team to discuss what might happen once the Government's furlough scheme comes to an end and what businesses can do to prepare.
To view this video series, please click the links below;
Building financial fortitude
To survive and thrive, businesses need to be resilient and robust. As a highly experienced business-advisory firm, Quantuma talks to hundreds of businesses daily and understands they need support to tackle issues proactively and move beyond the challenges. That’s why they created Building financial fortitude, a programme designed to provide information, insight and support on the key issues businesses and professional advisers are facing now and will need to tackle in the future.
Find out more at https://www.quantuma.com/building-financial-fortitude
This article constitutes general advice and should not be acted upon without taking specific advice. Neither the authors nor Quantuma Advisory Limited accept responsibility for any actions based upon this general advice