Cashflow is the Lifeblood
When running a business there are many areas on which you can focus to try and make it as successful as possible. When it comes to being financially sound however, early in my career I was constantly reminded of the following, ‘turnover is vanity, profit is sanity, cash is king’. Cashflow is the life blood of any business and not only businesses but also households. Given the recent turmoil we have seen induced by the coronavirus it would also appear that this has also sunk in across many other organisations this week.
On what might otherwise have been dubbed ‘Super Wednesday’ we, in the first instance, saw the Bank of England reduce the interest rate by 0.5% at an emergency meeting, taking it down to 0.25%. Whilst this was undoubtedly to try and support business and consumer confidence, the central bank also confirmed that the decision was taken to bolster the cash flows of businesses and households.
In a co-ordinated move with the Treasury, the Bank of England also announced three measures to provide at least £290bn in loans for small businesses which could potentially suffer from the economic shock and disruption from COVID-19. The first of these will see small and medium sized businesses have access to four year term funding, with a kitty of £100bn put aside to help fund this.
In order to make it easier for banks to lend to businesses the capital buffer, which they must have in place has also been relaxed for a period of 12 months. This has the potential to release a further £190bn for banks to lend. This is an estimated 13 times more than banks lent to businesses in 2019. The Bank of England believe that “this means that banks should not face obstacles to supplying credit to the UK economy and to meeting the needs of businesses and households through temporary disruption.” To us, this clearly highlights the recognition of the importance of cashflow, particularly in times of stress. Whether the banks actually lend or not is another matter.
Wednesday afternoon saw the release of the Rishi Sunak’s first Budget. Here again we saw support for businesses, with those of less than 250 employees able to claim back sick pay for up to 14 days. Smaller firms in the retail, leisure and hospitality sectors meanwhile have had their business rates abolished. Overall, the packages unveiled are worth around £30bn in an attempt to limit the threat to the economy.
Prior to the events of Wednesday banks had earlier in the week pledged to help the cause. NatWest announced that they were making £5bn available to support small businesses and their working capital needs. Lloyds added that they would be providing £2bn of support, which would include waiving arrangement fees for new overdrafts and also the provision for loan payment holidays. Early indications would suggest that in this current crisis banks are willing to support viable businesses for the future by allowing some shorter term leniency.
The central bank, government and commercial banks appear willing this time around to provide support where needed, to protect against the potential for defaults and job losses and keep the lifeblood, cash, flowing. Perhaps once this latest crisis has abated it will leave the economy on a stronger footing from which to recover. For now however, concerns around the economic impact of the virus continue to grip.
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