With the Job Retention Scheme winding down in October, how can you future-proof your business?
Introduced in March this year, this unprecedented move by the government allowed employers to furlough staff during the COVID-19 lockdown, replacing 80% of the wages of around 9m people (up to £2,500 per month per employee). This policy has played an important role in helping struggling employers to keep staff on the books who might otherwise have been let go due to the financial constraints brought about by the pandemic.
As the scheme winds down, however, it remains unclear how this will affect workers, employers and the wider UK economy. Some studies suggest that joblessness could rise by 10% (i.e. 2m people) in the short term, with potential “scarring effects” on the economy in the longer term according to the National Institute for Economic and Social Research (NIESR). Employers who are struggling to recover pre-pandemic revenue, moreover, may struggle to retain staff, possibly leading to constrained growth or even decline.
Protecting your business as an owner or director is important in the best of times. Yet given the current environment and near-term challenges brought about by COVID-19, it’s now even more important to ensure robust measures are in place to steer your business through the choppy waters ahead. Below, we share our thoughts on some crucial protection areas for business owners to consider regarding their corporate financial plan.
One of the biggest threats to the financial stability of a limited company is the unexpected death of a key shareholder. Without a plan in place, this situation usually results in the deceased’s share(s) getting absorbed into their estate. This is then bequeathed to their loved ones (after potential inheritance tax), who perhaps do not have the interest or experience to manage those shares effectively. This can be detrimental to your business strategy and performance when economic times are good. Within a recession like 2020, however, the risks could be even greater.
Fortunately, shareholder protection is designed to mitigate these risks to your business. Here, an insurance policy is written in the life of a shareholder but it is owned by your business (which pays the premiums). Should the person unexpectedly die then the policy ensures that the required funds are available to buy the deceased’s shares back from their estate. This can be beneficial for the deceased’s family as well, who are usually content to receive a lump sum in exchange for a business share which they might not want.
Shareholder protection should especially be focusing the minds of business owners who have key shareholders who are classed as “vulnerable” or “high-risk” regarding COVID-19. Here, it will be important to ensure that your protection policy is fully up-to-date to ensure it covers deaths resulting from the pandemic.
Similar to shareholder protection, key person protection is especially important for a business owner who has one or more staff members whose sudden loss would be financially devastating to the business (e.g. a key salesperson). Here, an insurance policy is used to insure the life of these individuals, providing a vital lump sum to your business to encourage financial stability should you lose one of them to an accident or illness. For more detail on this, read our dedicated guide to Key Person Protection.
It may be that you are looking at the expiration date of the Job Retention Scheme in October and are wondering how you will keep paying staff. If you are unable to meet payroll on time, then this highlights a considerable financial problem for your business. Cash reserves may have been depleted during the lockdown months, and these will need to be rebuilt. For most, this will mean increasing sales volume - which means customer demand picking back up.
If you have confidence that your business will “bounce back” from the pandemic-induced interruption, then it may be a good idea to consider short-term commercial funding. This could enable an increased cashflow to ease the financial strain as your revenue picks back up into 2021. This money will, of course, need to be repaid eventually, so seek professional advice and review your long-term business plan to ensure the suitability of this kind of funding.
Sadly, for some businesses things may never return to “pre-COVID normality”. Customer levels may be constrained for the foreseeable future if, for instance, your venue/premises can only accommodate a fraction of your previous footfall. In such situations, staff redundancies may be required to reflect this decreased customer engagement and to help ensure proper cashflow.
Coping with the effects of COVID-19 has serious implications for both business owners and those they employ. Many face difficult questions such as what to do if furloughed staff refuse to come back into work, or whether staff who have been made redundant can be reemployed. It’s important to recognise that, for both employers and staff, there is professional financial advice available to help you find the best solutions to your distinct situations. If not all staff members are required to come back into work all at once, for instance, then it will be important to consider the legal and financial aspects of how to bring people in gradually in a mutually beneficial way.
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