For so many companies across the UK, the impact of Covid-19 has been nothing short of catastrophic. But for small to medium-sized businesses, it has been particularly difficult. As they begin to navigate a new economic landscape, we look at what barriers they face, and how wealth planners can help them in the tough times ahead.
Doug Macadam started his company over 50 years ago, operating one recovery truck from a small garage in Colne, Lancashire. The business now has six centres based in Colne (head office), Morecambe, Blackpool, Ripon, Carlisle and Keighley, and boasts high profile clients such as Greenflag and the RAC. But in March, Covid-19 arrived and dealt a devastating blow to the business and the livelihoods of his loyal staff and family members. Over the years Doug has experienced many business ups and downs, but nothing quite like this. He said: “Our business is recovering broken down vehicles. If there are no vehicles on the road, we have no business. It’s as simple as that.”
The same can be said for hundreds of small businesses up and down the country who are only at the start of what could be a very difficult road ahead. While furlough schemes and business equity may have kept the wolf from the door, at some point the country will come out the other side of this crisis and these businesses will be forced to adapt quickly if they want to survive.
A new business strategy
While small to medium-sized businesses can lean on accountants for help with payroll and furloughing staff members, or employment lawyers to help with redundancy, it can be difficult for them to re-evaluate their longer-term business strategy. They can’t just turn to expensive consultancy firms such as McKinsey or PwC like larger corporates can.
As wealth planners, we are well positioned to help business owners think about the future, give them an insight into the likely economic outlook and consequences, and help them put a plan in place to cover all eventualities. Most importantly, we help prevent business owners making emotional short-term decisions that they might live to regret in years to come.
Cash flow management
Another key issue for these companies is cash flow management. While the government appears to be helping with ‘Business Interruption’ (CBILS) and ‘Business Bounce Back’ (BBLS) loans, the reality is not as clear cut. Contrary to popular belief, the borrower is 100% liable for the repayment of these loans, and many banks are insisting that business owners must offer the bank some form of security in the event they default. If they can’t pay back the loan, the bank will look to collect the debt in full using their normal debt collection methods. It’s only if this fails that they will approach the government for the 80% guarantee for CBILS or 100% guarantee for BBLS, as a last resort.
The point is, that these loans need to be repaid, and taking on extra business liability at a time when you have no idea what the future looks like is a huge risk. As a result, many business owners are using thousands of pounds of personal savings to shore up their balance sheets or are being forced to eat into much-needed equity within the business.
Doug Macadam said: “I’ve had to look at various options to maintain cash flow throughout this period of uncertainty. Sanlam has been an important sounding board for me. Lee knows my business well and has helped me make some important financial decisions. He has even become a conduit between me and my bank manager as he can see the big picture and knows what is right for us as a family.”
Pension funds are also a complex area at times like these and can become a source of extreme concern for business owners. It’s quite common for business premises to be held within the company pension fund, and the business effectively pays rent to the fund. If the company doesn’t survive, the property may not be worth as much as it was, and this could have an effect on future pension provision.
Another issue with pensions is that they are now available to access from the age of 55, and clients don’t need to use that money for an income in retirement. In a stressful and emotionally charged time, we see clients rush to use pension savings to help save the company, which is usually the very worst thing to do.
Companies like John Macadam and Sons are the backbone of the UK economy. They provide essential local and national products and services, and we need them. But that doesn’t guarantee their future if their short-term financial position has collapsed.
As we start to navigate the new ‘post-Covid’ world, we can only hope that the government is kind to these businesses. We won’t see reports of the amount of personal money that has been ploughed in to keep companies like Macadam to keep them afloat. Not to mention the blood, sweat and tears that have got them to where they are today. If, as wealth planners, we can play a small part in helping them through this difficult period, then we are proud to do so.