The Coronavirus Job Retention Scheme, or furlough as it is also known, was used in some form or another by two thirds of businesses since it was introduced in March 2020.
In fact, for many businesses it was a lifeline – and since the scheme ended in September 2021, many are struggling. With a number of companies being forced to close for months on end throughout the pandemic, many have depleted their cash reserves and have acute cash flow problems.
As a result, with businesses taking time to build back up to their pre-pandemic sales levels, many are struggling financially, and are looking to insolvency practitioners for support.
If you’re finding things tough, read on to discover what to do if you can't pay your staff.
7 options to consider if you can’t pay your staff:
1. Explore what help is at hand
Ensuring that your staff are paid on time is one of the most important elements of running a business – and if you are unable to do so, it is a sign of serious financial problems.
However, all is not lost, and there are options still open to you. First things first, it’s important to act quickly. In fact, as a director, you have a duty to act and take advice.
From borrowing extra money if you think there is a chance of recovery to redundancies if you need to save money, or even business rescue solutions to give you some breathing space whilst you figure out what to do next, read on to find out what to do if you can’t pay your staff…
2. Look at your cash flow
If your business is struggling financially, although it may be tempting to bury your head in the sand, you need to take control – and the first step towards this is keeping a close eye on your cash flow.
Review all the money coming in and out of your business daily so you can be aware of what’s coming up when, and create a cash flow forecast so you can know in advance how much cash you will need in the coming months.
3. Consider short-term funding
If you are confident that your business will be able to bounce back once things settle down, you could consider taking out some form of short-term funding to boost your cash flow whilst you wait for your revenue to return to pre-pandemic levels.
Doing so could help to take the immediate financial pressure off your business, allowing you to pay your staff while you focus on increasing sales. Of course, this money will have to be paid back, so you should only go down this route if you are confident that our company is viable moving forwards.
It goes without saying that an expert insolvency practitioner will be able to advise on the best funding option for you, but some potential avenues to explore include:
- Invoice finance – This allows businesses to receive a cash injection based upon the value of their unpaid invoices
- Crowdfunding – A model that connects businesses with investors using an online platform
- Asset finance – Using your company assets as collateral to secure a loan.
Discover more about borrowing options for your business in this blog.
4. Make the most of government schemes
Although the Coronavirus Job Retention Scheme has now ended, there are still government schemes out there to help businesses get back on their feet again.
The Recovery Loan Scheme, for example, is a potential way to boost finance. This scheme enables businesses to take out loans of up to £10 million, with the government guaranteeing 80% of the finance to the lender. This is open until 31st December, so there is still plenty of time to apply.
5. Consider redundancies
Sadly, for some businesses, life after coronavirus may never be the same again – and you might find that your staffing requirements reflect this.
If you are considering making redundancies to save money after the furlough scheme ends, it’s important to follow government guidelines to protect yourself from the risk of an unfair dismissal claim further down the line. Essentially, doing so ensures the selection process for redundancy is carried out fairly and correctly.
Just remember that when you make an employee redundant, they are entitled to be paid for all holidays that have been accrued and not taken – including additional holiday entitlement built up over the furlough period.
6. Explore business rescue solutions
If you are still facing financial difficulty but believe things could turn around in the future, there are options that can give you time and space to recover.
A company voluntary arrangement, for example, is a contractual arrangement between a business and its creditors where you pay back what you can afford in a sustainable manner over a certain period of time. Once the period is up, the rest of your debts are written off.
Another option is a pre-pack administration, which is a way of restructuring a business so that it can be packaged and sold to a new company that is often controlled by the same directors. It enables you to restart without your debts, and you can carry on trading during this process, too.
7. Consider liquidation
Finally, if the furlough scheme ending has had a devastating effect on your company, it might be time to consider closing it down and starting again.
Although a difficult decision, if your business isn't viable, you need to make sure no more debt is built up – and the best way to do so is to liquidate your company.
A creditors’ voluntary liquidation might be the right solution if your company is struggling with debt or cash flow problems. Find out more about CVLs and how they work here.
How McAlister & Co can help
If you are finding things tough now that the furlough has ended, our expert insolvency practitioners are here to provide help and advice on what to do if you can’t pay your staff.
Whether you need to cut costs, save money, or start over completely, we’ll help you to find the right solution for you. So, contact our team today to find out more.