By Jonathan Amponsah CTA FCCA, The Tax Guys.
The lockdown is being slowly lifted but we know there are still many businesses that will remain closed or at best will operate at a reduced capacity. Some entrepreneurs will have been able to do well during the pandemic with their core products or pivoted their business successfully. However, if you haven’t been able to achieve this, and knowing that ‘business as usual’ is a long way off, you may be wondering if your startup will survive.
There are actions that entrepreneurs can take to maintain and leverage their businesses. Let me share some ideas with resources to help you.
Review using a Financial Survival Action Planner
Entrepreneurs will need some form of action planner that covers areas in your business to review, as well as a checklist on all the support from the government and how it applies to you.
I suggest creating a spreadsheet and listing all the grants, loans and deferred payment options available to you. Then review where you can save money (tax, rent, staff, agreeing longer payments terms with suppliers etc.) and where you can make more money (new business ideas, speeding up customer payments etc.). Review your tangible assets – is there any way to leverage those?
To save time, you can download the ‘Peace of mind financial action planner’ here:
https://www.thetaxguys.co.uk/client-area/ This contains a Financial Survival Checklist and the Government Stimulus Planner. Work through the 16 areas with your accountant.
Applying for government help
It’s a good idea for entrepreneurs to review the help available with their accountant.
If your startup is a limited company (including one-man band companies) there is help available. And these keep changing, so please watch out for the dates and deadlines. Go through your finances and the government support available to make sure that you get the necessary paperwork right when making a claim (this could include furlough paperwork and board minutes). Again, speaking to your accountant can make this easier and ensure you include everything necessary for your business in your plan.
If you’re a sole trader there is a grant available. If you are eligible, you’ll have received a letter from the government. This scheme opened on the 13 May 2020 and you need to register for an online account and prepare to file the claim.
You will find both action planners and furlough paperwork templates here: https://www.thetaxguys.co.uk/client-area/
Cutting cost without crippling your startup
In times of crisis, resist the knee jerk reaction to cut all costs immediately because this can actually cripple your startup. Approach this with some consideration and financial analysis.
Even when no revenue comes in for, say three months, unless you plan to close your startup, there are some expenses you may want to leave alone or even increase when your competitors are cutting back (for example, smart marketing).
We have one client who ramped up their marketing at the start of lockdown (despite clients cancelling and the signs indicating that there were tough times ahead) and found that they almost doubled their business as a result plus they have a large number of warms leads for later in the year too. So, think carefully – is it time to ramp things up rather than cut back?
If you need to cut costs, create a spreadsheet with all your expenses. Then look at each in turn and see where you can cut back. A few small cuts can make a big difference and will often be less damaging to your startup than one or two exceptionally large cuts. Ensure you understand your cashflow and the ‘target’ you need to reach for survival. This way you will cut enough, but not too much.
You can read more about cost cutting here; https://www.thetaxguys.co.uk/2020/04/24/how-to-cut-costs-without-crippling-your-business/
There is also a cost reduction exercise and savings tool (excel template) that you can use to save time and money here: https://www.thetaxguys.co.uk/client-area/
Once you’ve reduced your costs and you know where your income will come from in the next 6-12 weeks (including income from the government), you now have a 12week cashflow forecast in place. This will give you some peace of mind, at least for the time being. This document is the basis of your business going forward. Stick to it. If you’ve decided to cut some costs, make sure you cut them. If you’re going to ramp up the marketing or add a new service – do so as soon as you can. You need to follow the decisions you made when creating the forecast – or it very soon becomes a work of fiction!
To save you time creating your own, especially if you’re not using an online accounting platform, you can download an integrated cash flow forecast tool here: https://www.thetaxguys.co.uk/client-area/ It’s called Time Saving Tool to project income-expense and cashflow.
Saving tax in a crisis
Did you know there are many areas to save tax during a pandemic? Ask your accountant about these examples and others to see what is relevant to your business:
- Normal Loss Relief (Generate a tax refund from last year)
- Negligible Value Claim (Get a tax refund if an asset you purchased has gone down in value)
- Company closure and paying 10% tax (Don’t overpay your tax bill in this difficult time)
- Research and Development Tax Credit (Are you missing out on generous tax cuts? Would your new business re-invention lend itself to tax a refund?)
- Early tax filing (File your returns early to secure eligible tax refunds)
- VAT bad debt relief (Reclaim any VAT you’ve paid on bad debt)
- Realising capital losses (If an asset you hold has gone down in value, consider selling it)
- Transferring assets at low values (If an asset you hold has gone down in value, consider transferring it to, say, your company)
Adapting your Business Model
Successful businesses are always adapting, leveraging and taking advantage of new commercial opportunities. This has never been truer than in the current situation. You may have heard of businesses taking their goods and services to their customers at homes or adapting and taking their products and services online. Restaurants that didn’t offer take-away service or delivery, now do. Spas are selling their exclusive creams and serums direct to their customers. How can you adapt your business to “make lemonade out of lemons”?
Creating customers by looking at current demand
There are certain products and services that are being consumed at high levels right now. Cycling is a good example of this, with sales of bicycles and accessories seeing a massive increase. Others that will come into their own as lockdown eases. How can your business solve some of the current pressing problems posed by the pandemic? If you’re a services startup or growth business, can you productise parts of what you do and sell these at a reduced price for now? For example, a psychologist can create a five-step programme to help improve the mental wellbeing of business owners, or help your staff build resilience? Or maybe you can run workshops online via a platform like Zoom?
Generating revenue streams by anticipating future problems and trends
Even after lockdown is fully lifted, it’s unlikely business will ever be quite the same again. The way we do business has changed and some of those changes are here to stay – at least for the short to medium term. For example, social distancing and increased hygiene awareness. If your startup is in, say construction or space consulting, how are you preparing now to help businesses solve these challenges in the workplace? If you’re an accountant, how would you support businesses in the coming months when they have to pay back all their deferred taxes? And if you’re a marketer, how are you preparing your clients with the right messaging to market their business successfully?
A great way to be inspired with new ideas about how to adapt your startup or growth business and spot the upcoming trends is to look at what other successful entrepreneurs have done. How did they approach it? What did they do? Read business books and good news business stories to be inspired or you can download a white paper here: https://www.thetaxguys.co.uk/client-area/ which covers 16 ways to leverage your business and stories from UK entrepreneurs.
Remember to take care of yourself
Whether you the founder of your first startup or a serial entrepreneur there is a good chance that you are a high energy, driven person.
While you are working hard and constantly pushing yourself remember that the current crisis has made a profound impact and will continue to affect our physical, emotional and mental wellbeing. Some of the help from the Government (furlough and grants) is coming through now. Hopefully these will go a long away to helping avoid total collapse and will ensure the economy gets back up and running. But if our mental health suffers in the meantime, the government schemes are a bit irrelevant. After all, if the startup closes and you’re healthy, you can begin again. The reverse is sadly not true.
There are plenty of resources and articles online from medical experts on this subject. Make looking after yourself a priority.
ABOUT THE AUTHOR
Jonathan Amponsah CTA FCCA is an award-winning chartered accountant and tax adviser who helps improve businesses. He is the CEO of The Tax Guys.