With the easing of the lock-in, long days and sunshine and the promise from government that everything will be ‘back to normal by Christmas’, you could be forgiven for thinking that the worst effects of the Covid-19 pandemic are over.

Soon there will be a vaccine, and everything will get back to normal.

Unfortunately, nothing could be further from the truth. Savvy business owners need to see past the government’s rhetoric and prepare for a very different economy in the latter part of 2020 and the first quarter of 2021.

The good news is that for those who are prepared there will be enormous opportunities.

First, let’s look at some facts:

1. There will be massive unemployment in the UK by the end of 2020; no-one knows exactly how many businesses will fail and jobs will be lost but add one in three of those furloughed or on self-employment support and it could be 5 or 6 million. Even the OBR say it will be at least 3.5m.
2. There will be evictions of tenants as rents are unpaid and repossessions as mortgagees default.
3. Banks, fearing falling property prices, will withdraw from lending not just to small businesses but also to the alternative lenders on which the small business sector has come to rely.
4. Those who still have a business or a job will be cautious; they will save more rather than spend.
5. The pre-Christmas period when spending is usually at its height – when many businesses expect to make up for losses earlier in the year – will see much lower levels of spending than usual.
6. A few whose businesses or jobs are in high demand will do extremely well, but they will be in the minority.

What are the consequences and what should business owners be planning to do about it?

Firstly, business failures will continue throughout the year and will peak in the first quarter of 2021 as those that have struggled on, hoping for a Christmas boost that doesn’t materialise, go out of business. Don’t be a supplier who is owed money by one of these businesses. Take payment in advance and tighten up credit control. Bad debts will be the cause of a lot of the 2021 business failures.

Next, cash in the bank will be more important than ever; it will literally save the lives of some businesses. Borrow as much as possible between now and the end of the year. Spend wisely (not on bonuses and dividends). Create a cash buffer and if this is greater than £85,000, the level at which your bank deposit is guaranteed by HM Government, open other bank accounts. In the worst case scenario, some banks will fail.

Thirdly, some of your competitors will be amongst those that go bust. Which ones will these be? Update your competitor analysis and ask: ‘What do I need to do to be the one that picks up the business from my failed competitors?’ and ‘Do I need to invest in extra stock?’ (Remember that when we leave the EU, probably without a deal, on 31 December, importing stock after that date will take longer and may be more expensive).

Fourth, no-one knows how long the pandemic will last or how bad the economy will become. Forecasting is challenging enough in normal times but in this environment it is particularly difficult. Even so imagining different futures and planning for those scenarios will help create a tangible plan for each possible scenario which should include modelling cash flow, burn rate and liquidity under each scenario.

And most importantly stay visible to your clients and customers; many businesses have become internally focused during the lock-in and forgotten to communicate with their most important asset – their customers. They have stopped spending on marketing just when it’s more important than ever.

These are the conversations your accountant should be having with you right now. If they're not then give me a call.

Noel Guilford