A large number of professional practices saw continued growth in fee revenue through 2018 and ’19. May traditional high street practices found life harder as they were challenged by on-line legal service businesses. But for all the burning question now is whether they have the working capital and balance sheet strength to deal with the threats facing all business in the post-lockdown era.
I am not going to pretend I have all the answers. Those who know me know that is not my style. But I have spent a large part of my professional career in practice and a good chunk of my time as an independent turnaround practitioner advising professionals so I’d like to think I have something to offer.
Described by some as the honeymoon period (not the sort of honeymoon I’d imagine most would want) and by others as the eye of the storm the late summer and early autumn look like they are going to be as good as it gets for many businesses. Government funding continues at generous levels, some taxes remain deferred, and lenders are adopting a benevolent approach to their customers.
Most UK businesses, at present, fall into one of three categories. Two of those would, in my opinion, benefit from specialist advice to help them through the challenging period ahead. Those businesses that are severely damaged, and may in many cases have been in peril before March, may require more dramatic intervention. Administrations, CVAs or perhaps the new Restructuring Plan recently enacted by the Corporate Insolvency and Governance Act.
The other two groups are those businesses that have done OK so far and those that have good prospects but have seen their working capital reduced through the Spring and Summer. Paradoxically both would benefit for a similar sort of support.
The threats are clear; even if a second lockdown can be avoided. The deferred liabilities will become due in late 2020 or early 2021 at the same time that government funding looks like ending. Add in the prospects of a recession as unemployment rises and debt becomes harder to obtain and the picture becomes, to say the least, challenging.
Professional practices need to formulate a plan to help them navigate the next twelve to eighteen months. I’ve been saying to my clients consistently over the past couple of months that we are preparing a budget rather than a forecast. The difference is subtle but important. The intention is to provide a target to hit and not try to second-guess how external factors beyond our control will impact. By doing this and building in sensitivities to the critical budget numbers, a plan can be more easily put together.
It will be a surprise if the majority of these plans, when formulated, offer any alternative other than needing additional finance. Those businesses that are successful in their application for further funding will need to act quickly and demonstrate a knowledge of the process.
CBILS funding remains available until September, and while there is a reported backlog of applications to be processed, it remains an attractive and viable option for many. Businesses that already have a Bounce Back Loan can “upgrade” to a CBILS to access more funding but they like those making a new application will need to meet the same criteria.
I have found that a successful CBILS application requires a number of key factors to be met:
- There must be a business plan containing words and numbers; it must demonstrate the business is playing to its strengths while at the same time showing that the downside is being managed;
- The initial approach to the lender should emphasise the positives rather than focus on the negatives – identify them by all means but make sure your cup is half full;
- Demonstrate that you have obtained input from an adviser. A Fellow of the Institute of Chartered Accountants who is also an accredited member of the Institute for Turnaround would be the perfect choice!
- Make sure that your proposal is written in “fluent bank”. Identify the issues any lender will focus on EBITDA, lockup, security and sensitivity;
- Plan, prepare, coach the management team before the meeting with the prospective lender;
- Respond promptly to any questions raised during or after the meeting;
Finally, to manage expectations, the CBILS process is not always a quick one. Timescales of three weeks are typical, and I’ve heard as long as seven weeks in some cases. Throughout that process the business leaders need to stay focussed on the day job and not be distracted by the ongoing discussions. I have adopted a policy of setting timescales and maintaining contact with the prospective lender to make them aware that we are actively engaged in the process. Professionally done this should be seen as a positive by the lender and not a sign of desperation.
If you are thinking of restructuring your debt, are looking for additional working capital or just want to explore the options and need a set of forecasts to accompany your business plan I’d be delighted to assist. The initial discussion is free and entirely without obligation. Feel free to contact me.
