Supercharging cash reserves during Covid-19

The coronavirus pandemic has shown real value for cash reserves following the unprecedented ripple effect it has had on economies across the world. As all non-essential shops were forced to temporarily close their doors in the UK, with many later operating on an online-only or reduced basis, emergency cash provided a fighting chance to the many.  Government restrictions affected the trading ability of businesses and resulted in the use of skeleton workforces as remaining staff members were put on furlough to avoid the prospect of redundancies.  

As the slump in trading hit unprecedented levels, this directly impacted the financial health of all sized businesses, including the hospitality, travel and food sectors which were arguably the worst hit, resulting in unavoidable redundancies and store closures. To protect businesses from running out of cash during the pandemic, the government announced financial support schemes and small business grants to increase business survival rates during the pandemic.

Importance of cash reserves during uncertain times

As an SME, start-up or self-employed professional, your cash reserves serve as an emergency cushion when facing financial difficulty, dips in income or when the unexpected forces you to halt trading, such as the coronavirus pandemic. Many professional contractors live by the ethic of building up a war chest to tide them over when facing gaps between contracts and experiencing harsher trading conditions, highlighting the importance of cash reserves.

The government established the Coronavirus Job Retention Scheme, Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and made Time to Pay arrangements more accessible for businesses in need of financial support during this period of uncertainty. Carry out a Covid-19 risk assessment to identify the areas of your business most disadvantaged by the pandemic and in need of a cash injection, helping you target the pressure points. If your business is slowly entering the stage of recovery as lockdown rules ease, here are some of the ways you can start building your cash reserves:

Minimise overheads and divert cash to reserves

Due to minimal use of business premises, warehouses and property, you may be able to reallocate unused funds set aside for overheads, redirecting this to boost your cash reserve pot. A reduction in utility bills for the period of Q2 coinciding with the peak of the pandemic could mean extra funds can be put forward to your emergency cash pot.

High profile businesses, such as Ryanair and Emirates have taken to extreme measures to reduce outgoings during this unprecedented period. Ryanair grounded the entirety of their commercial flights between mid-March and June 2020 due to restrictions on travel amid the global pandemic. Emirates announced mass redundancies of around 15 per cent of its workforce to preserve cash and keep the business afloat.

Businesses in the UK are focusing on cost-cutting exercises such as the redistribution of work within internal teams which would usually be outsourced to contractors to save money. Internal guidelines have been set by businesses to limit client entertainment, business travel and restrict expenses to reduce expenditure.

Government support

If you’re in genuine financial difficulty and require an emergency loan backed by the government, this can help stabilise your business until trading resumes as usual. If your business is in financial distress, it’s vital to seek immediate support, helping you return to a position of building cash reserves without the threat to the future of your business.

Identify and mitigate payment risk

Forecasting the likelihood of non-payment can help reduce the risk of bad debt and shield your business from financial risk. An effective credit control system can help you keep on track of invoices and identify upcoming payment deadlines. Software providers have intelligent integrations which can flag up pending payments and schedule staggered payment reminders in the run-up to the deadline.

Finance solutions

The coronavirus pandemic has forced alternative finance providers and banks to enforce more stringent terms, affecting the amount of credit made available. If you require more cash from your lender due to Covid-19 pressures, explore the government relief measures available to you. If you require payment in advance to fuel your business, invest in stock and build your cash reserves, the likes of invoice factoring can offer advance payment on receivables.

During this period of uncertainty, many businesses are looking for company liquidation services to close shop due to an accumulation of debt and no prospects of recovery. If you expect your business to reach this point shortly, seek advice from a licensed insolvency practitioner.

Identify supply chain risk

As a result of border restrictions and delays to imports and exports, your supply chain may be at risk, affecting your ability to acquire the relevant resources to deliver a full service. You may be required to source an alternative, local supply chain due to the lower logistical risk involved. Cutting out the logistics of the export and import process and the associated fees may help you streamline costs and redirect any remaining funds to your cash reserve pot.

Core sectors across the country have resumed trading, subject to local tier restrictions. As a result of the current climate, it’s important more than ever to contribute to your cash reserve pot to survive the long-lasting, financial effects of the pandemic.