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I was asked a few days ago why my business was in such a precarious financial position before the COVID crisis started. And why we don’t have sufficient cash reserves to get through a prolonged downturn. It’s a great question and will try and share some insight... 1/11
Not to make excuses but: 1/ Many businesses experience seasonal downturns. It’s worth remembering that the COVID crisis began just as we were wrapping up on the post xmas Q1 which is often a very quiet trading period (eg hospitality/travel) 2/11
Many businesses rely on a busy Q4 end to the year, and build up cash reserves to see them through the quieter start of the year. It’s actually right about now (April) when things should start to get busy for many businesses... 3/11
Personally speaking, my own business was having one of our busiest ever weeks just days before the lockdown started. So like a lot of businesses we had survived through the leaner winter months and were just starting to see the uplift. But our cash reserves were depleted... 4/11
Without a functioning market for their good/services, no business can surivive indefinitely regardless of size or how much cash you have in the bank. Sooner or later the cash is going to run out... 5/11
3/ Debtors - at any one time £200K-£300K of our turnover is tied up on our debtors list. i.e. we have invoices for goods/services and are awaiting payment from customers on typically 30 day terms. In normal circumstances we can rely on most customers paying invoices on time. 6/11
Right now we can’t. Customers en masse aren’t able to pay us. And that greatly restricts our ability to pay our suppliers/staff/fixed costs. It’s a vicious circle & I think this is something very underreported that will massively compound the financial crisis for SMEs. 7/11
4/ Stocks/assets - my business has significant equity tied up in products/stocks. In normal times, with a functioning market for these products, we could sell fairly quickly to raise extra cash to support the business. But at the moment, no one is buying... 8/11
5/ Growth. What has compounded our own particular situation is that 6 months ago, we embarked on a push to grow the business. Which meant hiring more staff, investing in new technology & infrastructure. We don’t have investors and have used our working capital to do this... 9/11
So this has put us in a particularly vulnerable situation when then COVID lockdown happened. As it was around about now when we were just starting to see the impact this investment has had on the business... 10/11
