Coronavirus: Budgeting for business uncertainty

Government measures designed to help lower the infection rate from COVID-19 have had an immense, and sometimes catastrophic, impact on large sectors of the economy.

Companies both large and small have had to adapt to incredibly difficult trading conditions, with many small business owners struggling to survive as their cash flow collapsed overnight.

Here we look at some things you can do to shore up your company’s finances to help your business weather this unprecedented storm.

Getting help to manage your cashflow amid COVID-19

As a business owner you know how vital it is to keep a strong grip on your company’s finances, both during good times and bad.

It’s possible that you will have had to endure the twin problems of less money coming in, while having to continue paying certain overheads. You may even have had to spend more.

The good news is that there are a range of government loan schemes designed to help you cover some of the costs your firm may have encountered as a result of the COVD-19 disruption.

Bounce Back Loan Scheme

The Bounce Back Loan Scheme (BBLS) helps small and medium-sized firms impacted by COVID-19 to borrow between £2,000 and up to 25% of turnover. The maximum loan available is worth £50,000.

You will not need to pay any fees or interest on the loan for the first 12 months. After a year, the interest rate will be 2.5% a year. A BBLS loan lasts for 6 years, but you can repay early without paying a fee. You will not be asked for repayments during the first 12 months.

To be able to get one of these loans your business needs to have been set up before 1 March, 2020 and be based in the UK. Click here to check if your business is eligible for a BBLS loan.

Coronavirus Business Interruption Loans Scheme

If you run a small or medium-sized business with a turnover of up to £45 million you may also be able to take advantage of the Coronavirus Business Interruption Loans Scheme (CBILS).

Businesses can get CBILS loans by applying to one of over 50 lenders taking part in the scheme. These include all the main high street banks. 

The government has said that it will guarantee 80% of the loan to the lender. It will also pay all interest and fees that you are charged for the first 12 months. 

To apply for a CBILS loan you’ll need to get in touch with one of the lenders taking part in the scheme via the lender’s website. The British Business Bank has a full list of  these lenders.

The government has published a range of case studies to show how businesses have been using the CBILS loans. 

Use Funding Xchange's tool to find out whether you can apply for loans through the government-backed Coronavirus Business Interruption Loan Scheme.

Check eligibility

Full details on loans available to businesses can be found in our going back to work guide for employers. 

Adapting to uncertain times

As a business owner you may well have meticulously planned out a budget, only to have to throw it all out of the window once the pandemic hit. 

So now it might be worth going back to the spreadsheets to make some adjustments to your business budget to help keep you on track, as workplaces are slowly starting to re-open.

 If your income dropped over the course of the pandemic, you’ll need to make adjustments in your budget to account for that. It may be painful, but take a hard look at your overheads and, if necessary, make sacrifices.

Compare business bank accounts.

Even if your cash flow was not too badly battered by lockdown or other government restrictions designed to halt the spread of COVID-19, you should still consider taking a look at your numbers. 

Tracking your finances in a spreadsheet or accounting software can be a great way to do this.

Clarifying your business goals

Like many other small businesses around the country, the pandemic may have forced you to radically rethink your financial goals. It may be worth taking some time to think about whether your current business budget reflects your new post-lockdown priorities.

If it doesn’t, you may need to redefine your goals and set a plan for achieving them over the coming months.

For more details read our guide on what small businesses need to know to survive the COVID-19 outbreak.

Creating an emergency fund 

If nothing else, the onset of the coronavirus pandemic has shown organisations of all sizes the need to be ready for many different situations. Creating an emergency fund to help cover unforeseen costs can be a key part of being prepared for any future shocks.

While many small businesses have had to work extremely hard simply to survive over the past few months, it will be useful to try and put aside some of your revenues to soften the impact of future events.

For example, a possible ‘second wave’ of the virus over the winter may require the government to put further restrictions in place on business activity.

Creating an emergency fund or cash reserve may be a painful decision to have to make right now given the competing priorities for your company turnover, putting some money aside now may be a shrewd move. 

As a very general rule, think about building up a fund to enable you to meet between 3 to 6 months of business expenses.

Paying down debts

 If your firm has been able to take advantage of any of the government’s business support packages, the good news is that many of these schemes were offered on more generous terms than commercial business loans.

For example, the government has previously said that a firm taking out a loan through the Coronavirus Business Interruption Loan Scheme may be able to get up to 6 years to pay the money back, depending on the purpose of the loan.

Chancellor Rishi Sunak has also said that the government will guarantee 80% of each loan issued by a lender through the CBILS scheme.

While the support is designed to support businesses to continue operating throughout the crisis, you should ensure that paying back the loans form a part of any future financial planning.