At Peak Cashflow, we always like to see the positive in any situation.zombie
But for the past year, we understand there’s not been a lot for us to be optimistic about, with the pandemic causing widespread disruption to people across the world.
And we’ve seen the exact same issues within businesses.
Hard decisions have had to be made, and cutbacks and money worries have plagued business owners. Instead of looking forward to plans for growth and development, unfortunately for many, it’s been a case of survival over success.
And survival is something most companies have had to learn to deal with at some stage throughout their business lives.
You may remember 2008; it was the year of the deepest UK recession since the second world war.
Lasting for five quarters, the ‘credit crunch’ had a huge, negative impact on UK businesses across the board.
With the UK’s three main industries; retail, financial services and real estate the hardest hit when the lending bubble burst, no sector was safe from the ripple effects of the financial crisis.
And this is where the idea of ‘zombie’ companies really took hold.
If you’ve not heard the phrase before, a zombie company is one that is said to be “neither dead or alive”, just like its namesake.
This name is given to businesses who are in a significant amount of debt, and any funds made are used to cover the interest, but are never enough to reduce the deficit.
Unfortunately, this means that a business in this situation cannot grow, develop, or invest in new staff or assets to move the company forward; therefore, they are just surviving.
And we’re still seeing businesses today dealing with the impacts of the 2008 recession, so the pandemic and its effects could not have arrived at a worse time.
Although, this time around, we have seen generous financial packages from the government to ensure businesses can weather the pandemic’s financial storm.
According to statistics, over 73,000 UK businesses received more than £17 billion of financial support from the Coronavirus Business Interruption Loan Scheme (CBILS), as of October 2020.
But of course, with the borrowing of cash comes further issues down the line with repayments, something businesses in ‘survival mode’ rarely consider at the time.
And, as of this month, we are also well aware of the pressing issue of deferred VAT, which the government had put in place to support businesses throughout the initial pandemic period.
For businesses who decided to defer their VAT between March or June 2020, HMRC initially required the payment to be covered before 31st March 2021.
With this date creeping up on businesses next month, HMRC has now developed the TTP, or ‘Time To Pay Scheme’, to extend these arrangements, which opened up on the 23rd February until late June.
Many companies have already seen forward-thinking businesses approach HMRC and successfully extended the payment period by around 9-12 months.
This extension has allowed businesses to free up invaluable cash to survive and thrive throughout the pandemic.
There have also been instances where more proactive businesses are thinking positively about the future, understanding that additional financial support is available to aid growth over the next 12 months.
A method we are recommending to support SMEs improve their working capital is with invoice factoring.
As the government support starts to slow, independent invoice factoring companies, such as Peak Cashflow, can support businesses by taking responsibility for securing and collecting invoice payments from customers.
This effective support improves working capital by providing businesses with access to a certain percentage of the cash owed by customers, before they have paid their outstanding balance.
The cash received can be used to invest in new team members, grow into a new market or product offering, or simply survive during these unprecedented times.
And, depending on your industry, there are also additional financial products available, including asset finance, which can free up capital for high-cost assets that are required to fulfil your business purpose.
With various products and solutions available to SMEs, our advice is simply not to panic; there’s still a chance to find a cure to the ‘zombie’ company apocalypse.