Covid-19 has had a huge impact on businesses, especially when we went into lockdown back in March and were told to stay home. Business as we knew it had to change.

We helped many clients plan ahead for this and the options that most faced were in four main categories defined by their forecast income over the next 2 months or so.

Many clients jumped straight to the “close the business” option, but there are far more options available, including putting your business into hibernation.

With Coronavirus not going anywhere anytime soon, possible local restrictions and some months generally being harder than others to plan for with a reduced in flow of cash, it’s important you look at the options available to you.

Here’s a brief introduction to the four key planning scenarios:

1. Hibernation

In hibernation you have no income from productive work all the time that we are in the lockdown phase. If you are lucky enough, you may have some cash coming in from payments for past work or payments from passive income. 

But you should feel as we come out of lockdown your business will pick up income again as the economic situation improves.

The aim here is keep the structure of the business and all the employee, supplier and customer relationships intact but paused until everyone is ready to restart.

2. Downsize

This is where income is still trickling in which you need to service but overall your business income is significantly affected. There are two aspects to this, is the decline in income temporary (causing a temporary downsizing of the business) or once we are out of the current phase will your income rise to levels below where they were pre-pandemic requiring a more permanent downsizing of the business?

We are finding that most of our clients are in one form or another of this downsizing category. There is an urgent need for cutbacks but decisions on each cut must consider if it is permanent or temporary. Some of the ideas around hibernating can be useful for specific sections of your business if the downsize is temporary.

If it is more permanent more careful planning may be needed before making significant and irreversible changes.

3. Not affected (much)

I doubt there is any business that can say it has had no impact from what is going on but there are many where the income stream is continuing for the most part and are able to cover overheads.  They may even be lucky enough to make some profit!

But these businesses will face logistical problems with workers being well enough or in a family position that enables them to keep working.

4. Potential for expansion

This is a rarity but there certainly are areas where growth is possible for a short time. Businesses in this bracket who have an ability to pick up income face even greater logistical issues, how do you get enough staff in the current recruitment market and you are competing with people who are being paid a reduced wage to stay at home?

Additionally, finance is hard to get because you may not be applicable for Coronavirus Hardship Loans but the banks do not have the manpower to provide capital you need through traditional means.

We will return to the other three options in later articles.  For now we will focus on practical steps to take in order to prepare for hibernation of the business.

Preparing your business for hibernation

The guiding principle for hibernating your business is to turn everything off, or at least down, so that the business leaves all its contracts, network, equipment and as much cash as possible intact for a return to work in a number of months’ time.

If every business in the UK had to recruit new staff because they had made all their staff redundant at the start, and then had to go and tender for new contracts with customers while suppliers tendered with them you can imagine that this will take a very long time for things to get moving again. 

It is therefore far better to have mutual arrangements to say “we are putting things to sleep for a little while. Let me know when you are ready to get working again and we will get working with you.” A bit of a “we can get through this together” mentality between businesses and between business and employee.

With this in mind here are five steps to hibernating your business

1. Notify your customers

In order for hibernation to work it is vital that you keep the faith of your existing customers.  If your business goes into hibernation with no explanation, many customers may think you have ceased to trade indefinitely or even permanently. This will make it really difficult for you to pick back up again and recover from any financial hits you have taken.

Put up public notices in shops or offices explaining your intentions and how to contact you if you are still working remotely or from another premises.

If you have a website and social media, consider uploading some videos online to explain short and long-term plans.

You should also ensure out of office responses on emails or email forwarding to whoever will man communications and post while you are in this situation.

2. Contracts: Suspend, not end

Where your customers are asking to cancel contracts or arrangements, question them and respond with an offer to “pause” or “suspend” contracts.  Don’t sever those connections unnecessarily.  

Since all businesses are in the same situation one would hope that a bit of win-win thinking might prevail. I suspect that this is more likely to be possible in interactions between two small businesses than where you have contacts with larger businesses, but I hope to be proved wrong.

There will however be key suppliers that you need and will therefore want to maintain services and necessary payments to.  These could be key support services or supplies with long lead times that you won’t be able to get supply from instantly when things resume. 

We are currently drafting template documents to help with this communication with suppliers, so keep your eyes peeled. 

3. Consider your options with your staff

It is especially difficult as an employer to know how to support your employees and your business, but putting your business into hibernation requires you to decide what you are going to with your staff. With the end of the Job Retention Scheme in October and the start of the less generous Job Support Scheme, you need to look at your options. You ultimately have five options:

  • Short-time working
  • Layoffs
  • Furloughed workers
  • Redundancies
  • Winging it!

We have a factsheet which goes into detail surrounding the options available to you. Download it here.

Download 'Your Options as an Employer' factsheet

4. Delay any non-essential payments

Extend payment terms:

Requesting payment holidays for loans and other debts owed is a good route to pursue but with staff being thin on the ground and demands growing to make such arrangements it can be hard to get in touch with those you need to authorise reducing payments.

Even HMRC’s Time To Pay Helpline is proving very hard to contact.

Delay tax payments:

We have just posted a separate article on our website to help guide you through arranging time to pay with HMRC. As a general rule wait until after the payment date has passed before calling HMRC for Corporation Tax, PAYE and past VAT payments due that you are unable to pay.

With regards to VAT you do not need to pay VAT owed on the February, March and April VAT returns until 31 December 2020. In this case there is no need to contact HMRC to tell them but we recommend that you use your internet banking to pause the direct debit you may have set up to pay this.

It is likely the VAT arrangements to be extended to May and June quarters as well – but await further announcements on this. 

Pay your Self-Assesment Tax in instalments

Review all your regular outgoings:

You should also review all your direct debits and regular payments. Are there any subscriptions that you can stop or pause while you hibernate the business? Are there costs that are non-essential that you might want to review?

5. Reduce your overheads

To hibernate the business there are some costs which clearly will go down but there are others that you may want to squeeze before you close the doors.  Here is a list of items you might want to consider:

  • Before you close your premises, make sure you give up to date meters readings for gas, electric and water, so you are only paying for what you use. You may then want to contact your suppliers to reduce your monthly payments – some let you do this online without having to sit in a queue on the phone
  • Put advertising/marketing costs on hold
  • Negotiating reduced rent fees or a payment holiday
  • Pause subscription charges for software or other items not in use
  • Put any orders of materials on hold
  • Review any travel related direct debits or accounts you have for reducing or halting payments
  • Put fuel cards on freeze
  • Contact lease companies regarding car rental payments and ask for a payment holiday

Talk to us

Through all of this crisis we want to help as many people as possible.  Your business is just as important to us as our own and we are making sure we keep informed of any updates to pass on to you as soon as we can.

Our team can help you with any of the items above and any questions you have. We are building the tools to help provide a service to you to make hibernation as easy as possible. 

To discuss further give your Principal Adviser or Client Manager a call on 01474 853856.