Covid-19 is causing havoc to the UK economy and is widely expected to cause a sharp contraction in GDP and an increase in company failures. But in terms of the latter not yet - company insolvencies in England and Wales were down 17% in April 2020 (the first full month of the lockdown) compared with the same month last year.
The Government has opened all the stop taps and is providing unprecedented support in many ways. Approximately one third of UK employees have been furloughed and the much simplified Coronavirus Bounce Back Loan (CBBL) of up to £50,000 100% guaranteed by the Government has proved hugely popular with SMEs with more money drawn down under that scheme than the longer running Coronavirus Business Interruption Loan Scheme (CBILS) where businesses can borrow up to £5 million.
However, in a survey of 900 businesses at the end of April more than 70% had lost at least half their revenue and 40% said they had less than eight weeks of cash in the bank and a further 20% only had cash reserves for 12 weeks. That coincides with when the Government has said the Coronavirus Job Retention Scheme (CJRS) where employees can be furloughed at no cost will start to be wound down at the end of July.
To continue to fund their businesses many directors/shareholders will look to put in money personally or from family and friends to keep their businesses going. Exactly at a time of great uncertainty and heightened risk. So it is good to know that there are ways of investing which give a much better chance of recovering your money should things not work out. The focus should be on the return of capital rather than the return on capital by making sure that:
All these steps can significantly improve the prospect of recovering new money but there are many pitfalls and before investing you should always contact a professional advisor for specific advice. Further information on funding a distressed business can be found at mw-w.com/funding a distressed business and we would be pleased to guide you through this if you have any concerns.
Here at McTear Williams & Wood we are ready to help you navigate a way through this crisis. If you have any concerns you can send us a question, use our free Business Healthcheck or simply get in touch.
It is business as usual at McTear Williams & Wood.