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Filling the funding gap now furlough has ended

What practical steps can you take to keep these clients on the road to stable and prolonged recovery as we near the end of 2021?

Paul Surtees Oct 20, 2021

The furlough scheme, or the Coronavirus Job Retention Scheme (CJRS) to give it its formal title, has provided a lifeline for UK business over the course of the pandemic. 

First introduced in March 2020 as a part of the Government's wider mix of Covid financial support, the scheme has allowed employers to cover 80% of their staff's wage costs during the periods of lockdown where employees could work or had to move to part-time hours. 

Despite being extended several times over the past year and half, and the percentage of government support dropping from 80% down to 60%, the scheme had to eventually come to end – and on 30 September the CJRS was closed permanently.

So, what happens now for clients that have relied heavily on the furlough scheme to fund their ongoing payroll costs? And what practical steps can you take to keep these clients on the road to stable and prolonged recovery as we near the end of 2021?

 

There’s good news, and some bad news

 

We believe strongly in having a future positive outlook when it comes to the recovery of the UK economy. But it’s also important to give a realistic overview of the current employment situation. 

Firstly, let’s start with the good news. There is a market for jobs out there, with recruitment on the rise and job vacancies hitting a record high of almost 1.2m in September. The most recent labour market figures from the ONS also show that unemployment has decreased by a rate of 0.3 percentage points, to 4.6% in the period up to July 2021. This is likely to be a consequence of businesses opening up and continuing their drive to build recovery and keep staff in jobs.

But there is bad news too. The rise in job vacancies is being driven, on the whole, by substantial staff shortages in many sectors, including jobs like fruit pickers, HGV drivers and hospitality  staff. These staff shortages are leading to shorter operating hours or wage rises in the affected sectors, with wage hikes for HGV drivers rising seven times faster than the average wage growth recorded for all jobs in the UK – all in an attempt to attract the right talent to these roles. 

To add to the impact of these staff shortages and rising wage costs, there are predictions that unemployment will begin to rise again, once the full effect of the closure of the furlough scheme begins to bite. The National Institute of Economic & Social Research (NIESR) predicted back in August 2021 that the unemployment rate would peak at 5.4 per cent in the fourth quarter of 2021, with an increase of 150,000 in jobless figures following the end of the furlough scheme.

Yael Selfin, KPMG’s chief UK economist, was recently quoted in The Guardian as saying that the unemployment rate may not be as bad as predicted:

 

"Last month’s ending of the furlough scheme could briefly raise the headline unemployment rate, which could average 4.9% for 2021 as a whole, representing a smaller impact than originally expected.”

 

However, it’s clear that there will be some form of fallout from the closure of the furlough scheme, and that greater unemployment, staff shortages and higher wages are potential threats that your business clients will need to factor into their planning for Q4 of 2021 and beyond.

 

Helping your clients plan for post-furlough future

 

As an accounting firm, you’ll no doubt be glad to see the back of the furlough scheme, and all the time-consuming administrative tasks that these grant applications entailed. But for business clients that have been reliant on this cash injection, it’s not such a cause for celebration.

With a significant gap now left in their cash flow, and predictions of higher wages costs to factor into the mix, keeping recovery ticking over and staff in jobs may be more challenging. So, what can you do to help clients plan for this cash-flow threat and overcome the main impact?

 

Here are some key steps to consider:

 
  1. Review the client’s capital position – having a good grasp of the client’s current cash position is vital, so start by looking at the numbers and seeing where working capital is looking stretched or the cash-flow position may be looking problematic. Using our Monitor tool, you can quickly run these kinds of initial risk reviews for your entire client portfolio, with any capital, cash, debtor and credit issues highlighted for you.

  2. Run cash-flow projections to predict their future cash position – cash projections will be invaluable over the coming months. Make sure that affected clients are running regular cash-flow forecasts to plot out the future path of their cash inflows and outflows, even if there are several different possible outcomes. As their adviser, the more insight you have into their potential cash position, the more power you have to help them take preventative action and minimise any negative impact.

  3. Look at routes to external funding – where cash gaps are starting to cause real damage to the client’s recovery, it’s sensible to look at the options for bringing in external funding. The government-backed Recovery Loan Scheme is still available until 31 December 2021 and offers a very attractive way to borrow funds. And products such as invoice finance, purchase order finance and working capital facilities can all offer ways to bring a meaningful cash injection into the client’s business. 

  4. Explore alternative routes for cutting costs – loans are not the only option for easing the cash-flow pressure, of course. A proactive spend management review is a good way to cut costs and reduce expenditure, so suggest that they ask the market to tender for their main supplies. Plus making use of the super-deduction capital allowance can help to reduce the client’s corporation tax bill, and R&D tax credits can also free up cash by cutting the client’s eventual tax liabilities and reducing the costs of their research and development (R&D) and development projects.

  5. Make decisions around staffing and redundancies – even with these measures, clients may no longer have enough liquid cash to cover their full payroll costs. In this scenario, some difficult conversations may be needed to discuss potential reductions in working hours, streamlining of teams and possible staff redundancies. This is absolutely a last resort, but needs to be on the table as part of the client’s strategy. 

 

Setting the best foundations for recovery and growth

 

UK SMEs are slowly beginning to regain their confidence and dig in deep when it comes to building stable recovery. As their most invaluable adviser, it’s within your power to help them overcome the cash-flow threat of the furlough scheme closure, and create the solid foundations needed for these businesses to grow, scale and meet their long-term aspirations.

We believe that resilient, well-funded businesses with genuine ambition for the future should be empowered to meet their goals. If you agree, and want to be a big part of the solution when it comes to business recovery, now’s the time to join our Capital Advisory community.

As a Capital Adviser,  you’ll have access to 100+ traditional and alternative lenders, as well as specialists in credit improvement, debt recovery, innovation grants and R&D reliefs. 

 

Get in touch with our Partner Managers and find out more about our education courses, onboarding and the benefits of the partner community.

Book a call with a Partner Manager

 

 

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