Economically, Covid-19 is hitting us all like a tsunami – big business, small business, individuals, and families – nearly all of us are affected by it. Without action, many businesses will drown and Government help is much needed. But like the recent floods, where all the flood water has to go somewhere, so all the debt arising from the funds being released by the Government has to go somewhere. The free lunch remains a mirage! How we pay off our future debt is worth bearing in mind but is not the pressing issue for today.
The glass really is half-full
As my client, Andrew G Marshall, a UK expert on couple counselling and relationships and author of over 20 books on the subject said in his recent excellent Daily Mail article on ‘Love in a time of corona’.
“Neuroscientists have shown that the brain is like Velcro for negative experiences (they stick), but like Teflon for positive ones. Evolution has given us a brain which tricks us into making three mistakes: over-estimating threats, under-estimating resources to cope, and stopping us from seeing the opportunities. This brain is great for protecting us and letting us pass on our genes, but not for a good life. So I keep reminding myself that it is natural to be frightened.”
These words are as true now when we face an economic meltdown as when we face issues in our close relationships.
We need to tackle the economic crisis surrounding us by looking for the positive and not being overwhelmed by the negative. The phrase ‘If you think you can, you can and if you think you can’t, you can’t’’ rings so true.
Tips for economic survival
Each of us, whether a business owner, a self-employed person or an employee may well now be anxious about our income stream. So, with a positive frame of mind what can we do? Risk is often dealt with by a process in which we seek to avoid it, transfer it, mitigate it, accept it or exploit it. Perhaps we can use such a process to help us now. It may give us ideas as to what we can do with the economic pain in front of us:
What costs can we avoid? Mortgage costs and rent can be deferred. 100% rates relief is available to many businesses. Salaries can be avoided for employees put on furlough with the Government’s scheme allowing employees to be paid up to 80% of their salary up to a maximum of £2,500 per month for three months initially.
If we are honest, a number of us have costs including luxuries where we can cut back. The lockdown means we can’t be out and about spending money – as long as we do not spend it all online instead!
It may be possible to re-negotiate some contracts so that the risk moves away from us in return for not ending the contract entirely.
Some staff can be asked to work fewer hours and so some payroll costs can be mitigated.
Self-Employment Income Support Scheme – The scheme will allow you to claim a taxable grant of 80% of your average monthly trading profits, paid out in a single instalment covering 3 months, and capped at £7,500 altogether. This is a temporary scheme, but it may be extended. If you receive the grant you can continue to work, start a new trade or take on other employment including voluntary work, or duties as an armed forces reservist. The grant does not need to be repaid but will be subject to Income Tax and self-employed National Insurance.
A known problem is typically for directors of small companies who pay themselves a small salary and a larger divided each year. They will not really be able to benefit as they have neither a significant salary nor significant self-employment income.
VAT deferrals – the government are deferring VAT payments from 20 March 2020 until 30 June 2020. This is expected to be in place for a minimum of 3 months. All UK businesses are eligible.
Coronavirus Business Interruption Loan Scheme (CBILS) – this offers loans of up to £5m. CBILS will provide lenders with a guarantee for 80% of the facility issued, therefore making many more lending applications viable in the eyes of the lenders. The remaining 20% is not though personally guaranteed (up to £250k). The borrower is always liable for all of the debt and must demonstrate that, were it not for the current pandemic, they would be viable and creditworthy.
Coronavirus Bounce Back Loan Scheme (BBLS) – This enables smaller businesses to access finance more quickly during the coronavirus outbreak. The scheme helps eligible businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000. The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.
Think of other ways of mitigating the loss to business income. This could be through ideas such as:• Hairdressers offering vouchers to pay now (to help cash flow) for future hair appointments but with a 30% discount,
• Restaurants are turning from serving in-house meals to takeaways or even delivering meals especially to older households where all householders re self-isolating.
• Projects may be delayed but planning for them can still go ahead. With a lot of extra time at our desks, are there ways to increase the likely efficiency of future projects by putting more effort now into planning the project with extra care (rather than spending more time chatting with friends online!).
Some economic pain is inevitable but many of us can withstand some pain without our world ending. Preparing a reduced personal budget may help us to see that we can put up with some economic pain without it being a disaster for us.
It is a truism to say that necessity is the mother of invention. Despite the awfulness of our current situation what opportunities does it afford us? Are there ethical opportunities for us? This is in stark contrast to those suppliers of PPE who have hyped up the price of scarce PPE by up to tenfold to make quick buck. How we act now will be remembered by our customers, staff and other stakeholders. Questions are being asked for instance about the ethics of the behaviour of top football clubs for instance. The ‘beautiful game’ could bring itself into disrepute.
Many SMEs are finding their products/services are no longer deliverable – but can they be delivered in a different way? Many businesses are finding that moving from face to face to online delivery of services (eg my relationship counselling client has gone completely to video counselling online). Some such changes will prove beneficial to a business long after Covid-19 is behind us.
Are there ways of operating more efficiently? Look at our network of contacts – what relationships could be nurtured? Are there strategic alliances that will be win-win for both parties? One big mistake is for us to think of only own survival – teamwork is even more important in a crisis and pain needs to be shared.
What skills do we have that we are not using? If we are not sure ask a trusted friend for feedback.
If we find ourselves with spare time during lockdown, rather than frittering it away, why not develop/strengthen some skills or learning something new to equip us better for the future?
There will inevitably be things on our ‘important but not urgent’ list that we have not done. Even doing our tax return for 2019/20 can be a useful job to tick off our list now rather than doing it at the last minute in late January as usual!
Although this article explores the economic consequences of Covid-19, business is fundamentally about people – how we relate to each other and how we treat each other. If we act ethically and with integrity that is likely to be remembered long after we recover financially and acting with integrity nearly always ends up paying dividends.
I am very happy to have an informal conversation with any SME business owner or those who are self-employed who have a specific question or just want to chat through their situation.
Sources of information
- The Institute of Chartered Accountants in England and Wales (ICAEW) has provided useful economic coronavirus information at this link.
- The Federation of Small Business has published a lot of useful coronavirus information at this link.
- Advice for emplyers from Croner is here.
- The Association of Business Mentors, of which I am a member, is seeking pro-actively to help businesses through this unprecedented turmoil.
- If anyone would like fuller details of the Covid-19 UK Government Support initiatives please email me at email@example.com for the ICAEW slide presentation.