As we reach the midway point of 2020, we have all endured a first six months which no one could possibly have envisaged. The devastating impact of the Covid19 outbreak has caused significant hardship for many businesses especially those in the early years sector. During this period the sector has once again rallied and has come together to educate itself in developing new processes, new procedures and new ways of working with the single aim of providing support and education to the UK’s children and working parents. In the past few weeks I have been hosting the RDK webinar program where we have been providing support to nursery business owners by offering advice from accountants, funders and cost saving experts to try and assist nursery owners as they seek to reshape their business models. With this in mind I have deviated from our usual topics and felt it would be useful to cover the government support that is available, at the time of writing, to all nursery groups, owners and businesses.
Job Retention Scheme
One of the most asked topics related to the government assistance schemes which have been made available. The most controversial of these schemes was the “Job Retention Scheme” which was rolled out with great fanfare by Rishi Sunak before last minute amendments considerably watered down the extent of the scheme which nursery owners could claim for. Recent changes to this scheme will enable part time working hours to commence for furloughed workers with effect from the 1st July 2020. Employers will need to cover the cost of the part time hours.
An overview of the amended Job Retention Scheme is listed below:
- The scheme was closed to new applications with effect from the 10th of June
- June/July – 80% of employer’s national insurance and pensions contributions can be reclaimed from the government up to a maximum of £2,500
- August – Employers will be pay all NI and Pension Contributions
- September – 70% can be claimed from the government, employers contribute 10%
- October – 60% can be claimed from the government, employers contribute 20%
- 1st November – Job Retention Scheme ends – no further government support
Bounce Back Loans
Recently launched, these loans are aimed at and are suitable for smaller businesses. Business Owners are entitled to apply for a loan of up to 25% of their turnover with £50,000 being the maximum loan amount available. The first 12 months of the loan are capital and interest-free, no repayments are due until after the first year and interest rates are very low, averaging 2.5%. The application process is simple, and many applicants receive their bounce back loan money within 48 hours of their application being submitted. There has been significant take up of these loans by smaller businesses who have been impacted by the pandemic.
Coronavirus Business Interruption Loan Scheme
The Coronavirus Business Loan (CBILS) seeks to provide government backed loans-up to a maximum amount of £5m. The scheme is applicable for businesses with a turnover up to £45m. For businesses with a larger turnover a different CBILS scheme is available but operates on similar principles. The CBILS was launched by Rishi Sunak with the aim to provide emergency support to struggling businesses who do not have sufficient capital reserves to survive the Covid19 pandemic. Companies with strong balance sheets and cash reserves are excluded from the CBILS scheme as the Government have deemed that those businesses have strength to absorb the financial impact of the crisis. The scheme is intended to assist those businesses severely impacted by Covid19 who have seen significant reductions in their income and who could be faced with administration/insolvency and significant job losses without emergency external funding. We have recently seen a number of businesses receive CBILS to support their cash flow issues as they seek to adjust their business models and realign their cost bases. The government is offering lenders a guarantee to cover 80% of the loan exposure. The CBILS scheme is available for application until September 2020 and a total of £330bn has been set aside to cover the government support for this initiative.
What actions can business owners take?
Many owners have spoken to us asking for advice about actions they can take to reshape their business models which will offer them protection from the current and any future economic and pandemic shocks. The biggest challenge is forecasting the longer term impact of the virus and the impact that it will have on income. It is often the case when projecting future numbers that forecasts are not pessimistic enough and this can lead to a greater cash requirement than originally envisaged at the outset. This in turn drives the need for more borrowings which compounds the issue, hampers recovery and indeed puts the business at greater risk. So the primary initial requirement is to make sure you ask for enough money to see you through the crisis as further refinancing may not be an option.
Having got the loan in place then other major actions to consider if faced with this situation are as follows:
- Reduce cost base – staff wage reductions – reduced working hours
- Headcount reduction – need the right balance of management / operational workers
- Agree Rent reduction / Rent holidays with landlord
- Renegotiate supplier agreements – shop around for better deals
- Review overheads – when was the last time you reviewed your energy deal?
- Place Staff incentives / team building days on hold – preserve cash position
- Eradicate ancillary expenditure i.e entertaining – non-essential costs
- Robust business planning – do you have detailed actions plans with staff capable of delivery?
It is vital during such a period to ensure that you keep your staff and employees engaged and on board with the situation in what is a stressful and worrying time for all. In considering headcount reductions you need to focus on keeping the people who are integral to the business going forward. Ultimately these are the people that can help you turn this situation around and ensure that you do survive if you have needed to access a CBILS loan.
Each and every business is different and as such will face its own unique challenges and not all of the above may be relevant. This is a wide-ranging topic and there are many facets to this. The directors at Redwoods Dowling Kerr have many years’ experience running a variety of businesses across a range of sectors, so if you would like to speak to us about your childcare business, be it sale options, acquisition options, business planning, our new cost saving energy service or you would like to register for our future webinars then please email me, andrew.steen@redwoodsdk.com
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