How SMEs can survive COVID-19

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COVID-19 caught many SMEs off-guard. The rapid spread of the virus and the country’s lockdown response changed the business landscape overnight.

While some businesses saw an unprecedented increase in demand for their products and services, others witnessed a massive drop in sales. For these businesses, the pandemic is a nightmare that threatens their very survival.

So, what can SMEs who are struggling to survive do?

There are several things, truth be told – and planning now is important because we will all ease out of lockdown eventually. Normal service will resume.

Here are our top tips for surviving the current pandemic:

Immediate financial relief for SMEs

If your business is struggling for cash flow, immediate financial relief is available via these Government-backed loans:

Bounce Back Loans

If you have a black hole in your balance sheet, one option is to apply for a Government-backed Bounce Back Loan. The Bounce Back Loan scheme can lend between £2,000 and up to 25% of your turnover to a maximum of £50,000.

You can apply if you:

  • Are based in the UK
  • Were incorporated before 1 March 2020
  • Are negatively impacted by the coronavirus

Any business can apply for a Bounce Back Loan, except insurers, banks, and public sector bodies (including primary and secondary schools).

Business Interruption Loan Scheme

Another Government-backed loan scheme available to SMEs who have been adversely impacted by the coronavirus is the Business Interruption Loan Scheme.

This scheme is backed by over 50 lenders, who will lend up to £5 million with the Government guaranteeing 80%. The Government will also pay the interest and fees on the loan for the first 12-months of your repayment period.

You can apply if you:

  • Are based in the UK
  • Have an annual turnover of up to £45 million

As with Bounce Back Loans, any business can apply, except insurers, banks, and public sector bodies (including primary and secondary schools).

Adapting your business to a COVID-19 world

The coronavirus is likely to be with us for the foreseeable future, and therefore, SMEs cannot rely on business to return ‘as usual’.

We must adapt to survive because loans will only solve cash flow problems over a short period of time. Here are some ways we can adapt:

Think like a CFO

A chief financial officer’s responsibility is to manage the core financial actions of the organisation they work for. This includes financial planning, management of financial risks, record-keeping, and financial reporting.

In a COVID-19 world, it is more important than ever to consider these actions in your business because they will directly affect the way you spend money, balance your books, and operate when lockdown is finally lifted.

Take this opportunity to review your accounts, understand your incomings and outgoings, and figure out where you can save and where you need to spend.

Consider alternate revenue streams

Business as you know it may be coming to an end. Rather than push a product or service that isn’t in hot demand anymore, it may be wise to consider alternative revenue streams to sure up your business and keep cash coming in.

Revenue streams that can temporarily or maybe even permanently replace your lost revenue are THE BEST WAY to survive COVID-19.

Here are some examples:

  • Monetise your website by selling ads
  • Create a YouTube channel and look for sponsors
  • Create merchandise if you have a strong brand
  • Start selling your products on Amazon with fulfilment by Amazon
  • Look for new products you can sell with drop shipping
  • Pivot to different markets, such as the domestic or international market
  • Bundle services / products together to offer more incentive to customers

Always be on the lookout for new opportunities and don’t be afraid to try something new if your data suggests you can make it work.

Refine your cash-to-cash conversion cycle

A cash-to-cash conversion cycle is a metric that can show you the time it takes for you to convert your inventory or services into cash.

Most companies focus on profit and loss to understand their cash flow cycle, however, rarely do they factor in capital, payables, receivables, and inventory.

These four things are linked, and by understanding their relationship, you can hope to reduce pressure on working capital. This is because CCC traces the lifecycle of cash used for business activity, revealing areas of inefficiency.

Review your critical suppliers

High-level financial risk assessments should be conducted on any critical suppliers to determine value for money and identify issues before they become problems. This will go some way to assuring business continuity.

To maximise your working capital you must think beyond your operation and the products you sell: you need to consider your whole supply chain and ecosystem. This is where many of your biggest savings and improvements will be made.

This includes how you procure, transport, manage and expedite your products and services, and your relationship with the systems and people who make this happen.

Have your suppliers raised their costs? Are there any tools, subscriptions, or services you use that have hindered the sale of your products during the pandemic? Are you spending money on services that you don’t use?

Reducing costs and saving money

COVID-19 is going to hit a lot of SMEs hard. Tightening our belts is a natural reaction and there are a few ways we can reduce costs and save money.

Reduce your utility costs

Despite your business not doing as well as it once was before the pandemic, you will probably still be paying the same fixed costs as before. For most businesses, these fixed costs will include energy, broadband and phone services.

Energy

Energy is an important fixed cost to consider because not renewing your existing energy contract and letting it roll-over will mean your energy plan being renewed automatically with an out of contract rate or deemed rates, which could be up to 40% higher.

The easiest way to save money on your energy bills is by switching. The process is easier than you think. With EnergyBillKill, you can compare energy prices from all the best energy suppliers and switch using our app in minutes.

Broadband and phone

Since most broadband packages nowadays include phone and line rental, you can kill two birds with one stone by switching to another plan.

You might want to consider downgrading your plan if you don’t need the fastest speeds – this will save you money. Just make sure you have unlimited downloads with no usage cap, so your essential internet services go uninterrupted. If you have a VOIP provider, savings can be made here as well by comparing prices.

Renegotiate the terms of your rent

If you rent or lease a commercial property, your landlord will be hoping for some level of payment continuity during the pandemic.

This is a good opportunity for you to open a dialogue to renegotiate the terms of your rent or lease to get a discount. You can use the fact that you plan to continue paying your rent as a bargaining chip, since your landlord will want your business.

Alternatively, you might also want to discuss a rent deferment, a small rent-free period, or a service charge reduction depending on your circumstances.

Also – the Government has recently provided extra protection for businesses with a ban on evictions for commercial tenants who miss rent payments. It is worth knowing your rights if you cannot pay your rent. You can find out more here.

Further COVID-19 guidance for SMEs

We’ve written a helpful guide covering how businesses can prepare for post-lockdown. This guide will help you plan returning to work safely.

We have also published a comprehensive COVID-19 tools and resources guide for businesses with handy tips on funding, cash flow, accounting, bookkeeping, workflow, project management and physical and mental health.

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