During what would normally be the busiest period of the year for businesses in retail, hospitality and other sectors, many will now be keeping a close eye on their cashflow as they deal with the impacts of COVID-19.

While Government-backed schemes like furlough, grants and loans will provide some much-needed support, there could be additional disruption to contend with as the UK reaches the end of its transition period with the EU and new rules take effect from 1 January 2021.

As a result of the pandemic, the Bank of England estimates that small companies in the UK could face a total cashflow deficit of £40 billion to £70bn this year.

The Bank’s research showed that small businesses are more likely than larger ones to operate in sectors that have been most affected by the impacts of COVID-19, such as accommodation and food, arts and recreation, and construction.

And while small businesses tend to hold a larger portion of their assets in cash than larger companies, which gives them more liquidity when it’s needed, their resilience to cashflow disruption is likely to be tested in the months to come.

Even before the pandemic, cashflow problems were among the main causes of business failure. The danger is they can be hard to spot if other financial measures, such as profit, are looking positive, and in many cases the signs aren’t obvious until it’s too late – at which point, you might struggle to pay your staff or your bills.

To avoid running out of money and prepare yourself for financial shocks, it’s essential to monitor the way your business’s cashflow looks now, and forecast how it might look in the future.

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The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

Lambert Chapman Chartered Accountants

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