The COVID-19 pandemic has had a huge effect on businesses all over the world - and if your business is struggling as a result, it’s important to take steps to preserve your business now. In times of crisis, it is vital to your company's survival that ALL non-essential costs are slashed so that you can cut costs and save money as much as possible. So, without further ado, in this blog, we share our 10 top cost-cutting strategies for companies facing financial difficulty.
1. Check your financial fitness
Before you get started, you need to make sure you have a clear picture of your current financial situation so you can put a plan of action together. Start by reviewing your accounts to see who owes you how much and audit your stock to see if any could be freed up to bring in more funds.
You should also make sure you carefully review your balance sheets to see what efficiencies could be made. For example, what expenses aren’t essential? Could you move your premises to a cheaper location? Are your employees working effectively or are they doing too much overtime? By getting to grips with the bigger picture, you can then zone in on specific problem areas and begin to cut costs.
2. Set up cash flow control
When it comes to the successful running of a business, you need to review your cash flow on a regular basis - but in times of financial difficulty, stringent cash flow control is essential. Yes, it’s time to get strict and question each expense by setting up a daily cash flow to control all cash going in and out of the business.
For starters, make sure that all purchases are approved by you and ensure that no petty cash is drawn from the bank unless you personally go and get it, and you should also carefully review all expense claims and reject any that aren’t necessary. By keeping a close eye on your cash flow day-to-day, you can question what every pound is spent on and why.
3. Review your bills and liaise with suppliers
You also need to be stringent with your suppliers and review all expenditure. If you think you are paying too much, you could well negotiate with them and encourage them to offer a better deal to save you money. At the end of the day, they want to keep your custom, so ask every supplier for a review of their prices and if they can cut you a better deal. You could also consider asking them for a few extra weeks' payment grace, or ask for regular monthly payments.
4. Ask for a breather on rent
In a similar vein, another way to cut costs is to speak to your landlord. Could you ask them for a breather on rent? Or perhaps you could pay monthly rather than quarterly for a while to help cashflow? Most landlords will be very keen to retain their tenants and may be more forgiving than you expect - so it’s always worth asking!
5. Negotiate with creditors
It’s not just your landlord and service providers you should be talking to, though. If you are struggling to pay your creditors as a result of the coronavirus pandemic, it’s important to be open and honest with your creditors and not run away from your problems.
By having a conversation and letting them know where they stand, they will be much more likely to show goodwill if they know about potential issues in advance - and you might even be able to reach an agreement and possibly pay back lower amounts whilst your company is in crisis.
6. Invoice financing
Another possible cost-cutting strategy is invoice financing, which is when lending is organised against the amounts raised on your invoices. Invoice discounting is a type of debtor financing, where a finance company will advance a portion of your unpaid invoices so you have immediate liquidity, whilst invoice factoring converts outstanding invoices due within 90 days into immediate cash. The lender will set up a new bank account in your company’s name to collect customer payments and you will then be allowed to ‘draw down’ those funds when they have cleared.
Both options are powerful business tools that enable you to raise money from your debtor ledger, however, if you are factoring or invoice discounting and your business is still struggling, it’s always worth asking your factors to cut their costs - and be careful to only draw down funds weekly to keep on top of your cash flow as well. Discover other ways of raising money here.
7. Asset refinance
Another potential way to free up some cash is by financing your company assets. Business assets can form collateral for lenders to secure themselves against - and used in conjunction with other methods such as factoring, this method can provide a package of new finance to overcome distress. Find out more about selling company assets in this blog.
8. Arrange a Time to Pay agreement
HMRC’s Time to Pay scheme provides companies with additional breathing space during which to settle their existing HMRC liabilities, which means you can free up some cash and pay back what you owe gradually. The scheme has been in place long before coronavirus but has been extended to support businesses who have been impacted as a result of the pandemic.
A TTP arrangement allows for your debt to HMRC to be paid back in monthly instalments, typically over a period of up to 12 months, enabling you to manage your finances and get back on your feet. Find out more about how to apply for a TTP arrangement here.
9. Seek government support
Although there were several business support options available throughout the pandemic, some of these are now drawing to a close. For example, the Coronavirus Job Retention Scheme is set to finish at the end of October - however, there is still support available. When furlough ends, the government is offering firms £1,000 for every furloughed employee kept on until at least the end of January, £1,500 for every out-of-work 16-24-year-old given a ''high quality'' six-month work placement and £2,000 for every under-25 apprentice taken on until the end of January, or £1,500 for over 25s.
In addition, the Bounce Back Loan Scheme is still available until 4th November, Retail, Hospitality and Leisure Grant Funds of up to £25,000 can still be applied for, and the Coronavirus Business Interruption Loan Scheme (CBILS) is still available, too. Businesses in England that are required to shut because of local COVID-19 interventions will now also be able to claim up to £1,500 per property every three weeks, providing a safety net to further protect jobs where a business is required to close. New support options are also being introduced regularly, so be sure to keep checking gov.uk for the latest news and advice.
10. Keep notes on everything you do
Finally on our list of cost-cutting strategies for companies, it’s essential that you keep a record of everything you do. Keep minutes or notes of all decision's directors' meetings, or if you are a partnership or sole trader, make sure you agree on actions to be taken and make a record of your meetings. Not only will this help you to keep track of things, but also, should you need to seek professional help from an insolvency professional in the future, it will make their job much easier.
Need expert advice?
If you are currently facing financial difficulty as a result of the coronavirus, McAlister & Co can provide free help and advice. Our friendly and approachable team are experts in insolvency and turnaround solutions for business and individuals. So, if you need clear, strategic advice about different cost-cutting strategies for companies, look no further. Contact us today to find out more.