Cash flow and funding management

On a daily basis, we are seeing vast developments regarding the spread of the COVID-19 virus and the government’s response. We can see that this is going to have a substantial impact on the motor industry. Therefore, we must react quickly but calmly, and be proactive in identifying solutions to survive and manage the rapidly evolving situation.

One of the greatest threats to business survival is the impact on cash flow during lean periods.  As social distancing increases in line with government advice, it is inevitable that dealerships will experience a reduction in consumer footfall and a likely reduction in business. This is a difficult time for all but there are measures that we can take to mitigate the impact on dealership cash flow as outlined below.

Key areas

– Cashflow management and communicating with funders
– Management of funding facilities
– Working capital management
– Potential ways to reduce property costs

Cashflow management & communicating with funders

In this period of uncertainty, cash flow forecasting must be a priority for dealers in order to carefully and proactively manage transactions with banks, manufacturers and other funders. Without cash business cannot continue to function – we need this to pay wages, suppliers, debt and to fund stock.

Things to consider include:

– Frequently checking the business forecast versus actual cashflow and appropriately revising the forecast as applicable.
– Ensuring that forecasting is regularly carried out in order to ensure that any red flags are highlighted daily.
– In order to communicate with funders, identify potential profit from short term actions.
– Factor probability analysis into cashflows to reflect potential scenarios in key areas of the business.
– Carrying out enhanced reporting and monitoring processes for cashflow including the downside scenario.
– Identify the downside scenario and make necessary funding arrangements.

There must be an increased level of depth and regularity to ensure the effectiveness of cash flow expectations and forecast planning. As always it will be necessary to identify the KPI’s needed in order to achieve the forecast and focus on any potential blocks to achieving this.

Management of funding facilities

It would be advisable to begin discussions with your bank and other funders to identify whether you are able to access a deferral of mortgage payments and/or an interest rate holiday. Alternatively, you may be able to access a temporary increase in funding facilities. In doing so it may alleviate some of the pressure in order to deal with any downside probabilities identified in the cashflow forecast.

It has been announced in Rishi Sunak’s daily briefing on 17th March that a new Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, will enable businesses to apply for a loan of up to £5 million, with the government covering up to 80% of losses with no fees. Businesses will be able to access the first 6 months of that finance interest-free, as the government will cover the first 6 months of interest payments. Additionally, banks are announcing that they are prepared to provide additional temporary funding. As part of the discussion to obtain this financial support, funders will be keen to understand cashflow forecasts including the downside scenario as well as planning ways to reduce costs and the impact that this will have.

Any dealer eligible for Small Business Rate Relief will automatically be entitled to a grant provided directly by local government. This is currently timetabled for April.

Working capital management

It is important to ensure that dealers operate efficiently by monitoring and using current assets and liabilities in the most effective way allowing for potential changes to normal policies during this difficult period.  We recommend considering ways to accelerate the collection of cash owed to the business while finding ways to defer payments going out of the business.

Specific consideration should be given to the following areas:

– Defer tax payments to HMRC
– Defer payments to shareholders and directors
– Defer or reduce where possible other costs such as non-permanent members of staff, staff benefits, one-off project costs
– Prioritising supplier payments

Potential ways to reduce property costs

As we know the COVID-19 situation is evolving daily. As a result, the costs of running a dealership should be meticulously reviewed. We should be looking critically at facility and maintenance costs including gas and electricity and seeking reductions in any fixed elements of the costs.

During this difficult period, it is essential to get advice from property and tax experts. This included reducing VAT liabilities on deferred rent payments and possibly protecting assets from business risk through company restructuring.

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