Sharon McDougall

The Coronavirus Job Retention Scheme (CJRS) continues to provide a lifeline to millions of workers across the country during the coronavirus pandemic by subsidising employee wages during a period of economic uncertainty. As non-essential businesses were forced to close their doors across Scotland, the furlough scheme stepped in to protect jobs, reducing the likelihood of mass redundancies and temporary job losses. The scheme has undergone multiple extensions, the latest stretching to the end of April 2021, after which the furlough scheme will end.

As businesses brace the beginning of 2021, employers will be required to review their overheads and conduct cost-cutting strategies to compensate for forecasted dips in income. As social distancing measures reduce store capacity, new Brexit agreements replace the old and government support tapers down, ailing businesses will be withdrawn from financial help for the first time since over one year. As the furlough scheme contributed up to 80% of employee salaries, up to a maximum of £2,500 per month – employers will need to review company cash flow to ensure that they have enough funds to pay wages and comfortably maintain business operations.

Review company finances ahead of furlough end

By conducting a financial health check on your business, you will be able to assess if you can afford employee wages after the furlough scheme ends, taking into consideration company cash flow and your balance sheet. By reviewing your financial position ahead of April 2021, you can restructure company finances and business operations, if necessary.

The scheme is designed to protect viable jobs – not jobs which would otherwise collapse if not for the provision of financial support through the Job Retention Scheme. If your business is likely to fail without streamlining expenditure and reducing spend, you will need to form an action plan to secure a healthy future for your business, rather than turning to staff redundancy. A licensed insolvency practitioner is likely to be the first port of call if your business is struggling from Covid-19 pressures and requires a company rescue or restructuring solution. By carrying out a cash flow and balance sheet test flow insolvency, you will be able to answer - can I afford to pay staff after furlough ends?

If your business needs a helping hand, commercial finance can help release funds based on your intended use, such as asset finance for industry equipment or invoice finance to bridge any gaps in income while waiting for invoice payments to drop in.

40,000 retailers in significant financial distress during Q4

Research carried out by insolvency firm, Begbies Traynor, found that the number of businesses in distress is 24 per cent higher than in Q4 last year. As 40,000 retailers were in significant financial distress between October and December 2020, insolvency rates will likely hike after the end of the furlough scheme. The characteristics of a business in ‘significant distress’ refers to businesses on the receiving end of legal action, i.e. high credit risk companies representing key factors which are deteriorating such as working capital, contingent liabilities, retained profits and net worth.

If these businesses are already on the brink of collapse, the end to the furlough scheme will be another blow to strike them down, as seen with Debenhams which recently announced a raft of store closures across Glasgow, Edinburgh, Aberdeen and Dundee.