Business Matters – Issue 3
A detailed look at the government’s Bounce Back Loan Scheme
Our lifestyles may be diverse, but we’re all united in our belief
The year ahead
Unprecedented levels of borrowing among businesses during the pandemic
Mental health vs COVID
It’s important not to overlook your own mental health
Every minute counts
Nobody could have predicted how 2020 would play out
Whatever your business, product or service, it’s important to forward-plan
Bouncing back – The business support to take advantage of by the end of January 2021
A detailed look at the government’s Bounce Back Loan Scheme – and a reminder that now’s the time to act if you’re thinking about taking advantage of this finance option.
The Bounce Back Loan Scheme (BBLS) was launched in May 2020 to help smaller businesses impacted by the COVID-19 pandemic. As of 22nd October 2020, 1,336,320 Bounce Back Loans worth £40.2 billion had been delivered to smaller businesses.1
The BBLS is administered by the British Business Bank and made available to businesses via accredited lenders. The scheme helps small and medium-sized businesses to access a state-backed loan of between £2,000 and up to 25% of their turnover (with a maximum loan of £50,000). The government guarantees 100% of the loan, and there aren’t any fees or interest to pay for the first 12 months. After the first year, the interest rate will be 2.5% a year.
To qualify for a loan:
- Your business must have been established before 1st March 2020
- Your business must be based in the UK and have been negatively affected by coronavirus
- If the business is a “business in difficulty” as of 31st December 2019 then businesses in agriculture, aquaculture or fisheries may not qualify for the full amount, and the loan cannot be used for export-related activities.
Extending the loan period
In September 2020, amid fears of a second wave, the government was under pressure to continue its efforts to mitigate the impact of COVID-19 on businesses and workers.
Under Chancellor Rishi Sunak’s Winter Economy Plan, announced on 24th September, more time was given for businesses that have taken advantage of the government’s loan schemes, under the ‘Pay as you Grow’ options. The repayment period for the Bounce Back Loans was therefore extended from six to 10 years. This, the government says, nearly halves the average monthly repayment.
A new deadline
Recent changes also mean you now have until 31st January 2021 to apply (extended from 30th November 2020). This extended application deadline also applies to the Coronavirus Business Interruption Loan Scheme, Future Fund and Coronavirus Large Business Interruption Loan Scheme.
You can also ‘top up’ your existing Bounce Back Loan if you haven’t borrowed the full amount, i.e. the lower of £50,000 or less than 25% of your turnover. Businesses can make use of this option once.
Struggling businesses, if they are “in real trouble”, will also have the option to move to interest-only payments or pause payments for up to six months, without affecting their credit rating.
To conclude, then, the Bounce Back Loan Scheme is a useful finance option for small businesses who are struggling due to the effects of COVID-19, and could also provide a valuable source of cash for self-employed people who don’t qualify for the Self-Employment Income Support Scheme or Furlough Scheme. Those that could be eligible are newly self-employed people who have not yet submitted a self-assessment tax return (who have been trading before 1st March 2020), and self-employed workers with profits in excess of £50,000.
If you’re considering applying for a Bounce Back Loan, we would recommend doing so as soon as possible. The deadline is 31st January, but the British Business Bank notes that applicants from eligible borrowers will be subject to customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks – so make sure you leave sufficient time for these to take place.2
You can find out more information and eligibility criteria in the sources cited below – and, here at Wellesley, our advisers are here to talk you through your options.
Income incoming: Better to be safeguarded than sorry
Our lifestyles may be diverse, but we’re all united in our belief that financial safeguarding matters, particularly in these ambivalent times. It would be foolish to think that any of us are invincible when it comes to the unexpected – do you know the difference between income protection insurance and critical illness cover, and how they can help you stay on track with your mortgage payments in the event where you become seriously ill or are unable to work?
The twists and turns of this year’s COVID rollercoaster have brought us all back down to earth with a jolt, in many respects, and we’re having to adapt our financial priorities accordingly. One of the many lessons we’ve learned is that there’s no time like the present to have a plan B ready to ensure our mortgage and bills are paid in that dreaded worst-case scenario.
Between 1 March and 31 May 2020, life insurers paid out a staggering £90 million in claims, according to the Association of British Insurers – this was to support families in light of COVID-19 deaths and pay off outstanding mortgages.1
Buying a property ranks high as being one of the biggest financial decisions we’ll ever have to make, and along with that comes the responsibility of paying off our mortgage. Any kind of drop in income, albeit temporary, can therefore be a worry in this respect.
“If you are off work ill, for example, you may be able to claim state benefits, but these aren’t necessarily going to cover your mortgage payments,” comments Paul Johnson, Client Banking and Mortgage Manager at St. James’s Place.
One size doesn’t fit all
Your personal situation will always dictate what kind of protection is most suited to your circumstances, and that’s where professional financial advice comes into its own. In short, the different types of insurance available include:
- Life insurance: A lump sum paid out on death, this could be used to pay off a mortgage and provide an additional amount of money for your family, depending on the level of cover chosen. Whole of life cover runs for your lifetime, while level term insurance lasts up the point of having repaid the mortgage. Alternatively, there’s decreasing term insurance, which covers you for a set period, such as 10 years, with the level of coverage decreasing over the life of the policy at a fixed rate.
- Income protection: A tax-free income in case you’re unable to work for an extended period because of an accident or illness. The amount of cover varies depending on the selected plan, and usually starts after a certain period – say, six or 12 months. It may run for several years, until you go back to work or even until you retire.
- Critical illness policies: A lump sum payout if you’re diagnosed with a condition covered by your plan, such as a heart attack, stroke or cancer.
Your financial adviser can discuss further types of cover in such critical times too, such as rent insurance – this covers rent payments if a tenant is struggling to meet them.
Police your policy
Paula Read, Head of Protection Proposition at St. James’s Place, notes: “Income protection and critical illness cover can be equally important and bundled into a multi-part plan.
“If you suffer a heart attack, for example, you may receive a payout from a critical illness policy, but if you’re off work with a long-term illness, your mortgage payments can still be met via income protection. If you have a family, then life cover is also important to ensure full protection.”
Whatever cover you have, it’s important to review your policy to ensure it continues to meet your needs. Johnson says: “If you have life cover on a decreasing term, for example, beware that this may not be sufficient to cover your mortgage if you move or remortgage.”
He mentions that it’s also worth checking your life cover is structured in the best possible way. For example, if it’s set up in a trust*, payment stays outside your estate for the purposes of Inheritance Tax.
“Similarly, with income protection, you might change jobs and find the policy won’t pay out, or an employer’s cover may make your personal policy redundant,” he adds.
Protecting your income with the professional support of a Wellesley financial adviser couldn’t be simpler – call us today on 01444 244551 as a first step towards a personalised protection plan that fits in with your current circumstances, no matter what the future holds. Be safeguarded – don’t be sorry.
*Trusts are not regulated by the Financial Conduct Authority.
1Association of British Insurers, “Insurers pay £90 million to help families cope with Coronavirus deaths”, August 2020
The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.
The year ahead: Managing COVID-19 debt in 2021
Unprecedented levels of borrowing among businesses during the pandemic means owner-mangers are faced with a whole new set of psychological and practical challenges as we enter 2021. Here, we look at how businesses should approach this debt, and how to plan effectively for the year ahead.
Did you know that UK businesses borrowed five times more from banks between January and August 2020 than in the whole of 2019?
EY Item Club shows that the total new borrowings (net of repayments) over that eight-month period were £43.8bn, compared to just £8.8bn in 2019.1 Perhaps unsurprisingly, it’s small businesses that have had to borrow the most, with EY forecasting that the total stock of business loans from banks – including outstanding balances of loans taken out in previous years – is up 11% in 2020. This is compared to a 2% growth in 2019, and the jump in SME lending stock is reported at around 20%.2
Business growth advisor at Elephants Child, Sanjay Bowry, isn’t surprised by these figures:
“SMEs don’t typically operate with large cash buffers and even a small drop in business activity can create a cash crunch very quickly. So, with the large and sudden impact of the pandemic, they have quite rightly been taking up the debt support that has become available – mostly from the government-backed Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).”
But this does not come without new challenges, says Sanjay, and owner-mangers find themselves presented with both psychological and practical ones.
According to Sanjay, taking on debt is anathema for many business owners:
“They have financed their businesses successfully from day one without debt and have never even considered borrowing money. For business owners with this mindset who have now taken on debt, it can be a time of enormous stress. Others have a diametrically opposite view. Debt isn’t seen as a negative but as an enabler for survival and growth.”
Sanjay particularly stresses to clients that debt is neither good or bad, but simply a business tool that should be used appropriately, whether for survival or growth. And to those who naturally worry about having taken on debt during the crisis, he advises that the best stress reliever is rigorous planning of how you will manage the debt and repayments. He says:
“Just knowing exactly what actions you need to take and what scenarios you have planned and prepared for makes the whole situation much more manageable and less stressful.”
Rob Warlow, Founder of SME loan broker Business Loan Services, has another tip for business owners and entrepreneurs who are stressed out, saying that one of the things they are not good at is admitting they need help. “It’s just not in their DNA,” he says. “But probably the top tip from me is to take some outside advice. Good advisers will act as a sounding board, will bring ideas to the table you may not have thought of, and will be supportive from an emotional point of view.”
Expanding on Sanjay’s advice for rigorous planning, the managing director of Blue Rocket Accounting, Miguel Calabrese, suggests a 13-week period (90 days) for detailed cash flow projections. He says:
“We like 13 weeks as a timeframe because if you do spot a cash crunch, there is enough time for you to do something which will have an impact on the cash position at the end of this period, such as finding more funding or cutting costs. And it is a short enough timeframe to make cash flow projections fairly easy and accurate.”
He also advises making this a ‘rolling’ forecast by adding week 14 at the end of the first week and so on, updating the intermediate weeks’ forecasts as you go. Making cash flow planning a weekly exercise for business owners means they will quickly build up a detailed knowledge of their short-term cash position, therefore making them more comfortable by minimising uncertainty.
When starting this planning, Miguel suggests beginning with outgoings. While revenues will be slightly less certain, these will be fairly predictable for the next 13 weeks – and then focus on scenarios. Think about how you might capitalise on a best-case scenario where COVID recovery really takes off, and then think about contingencies for a worst-case scenario where revenues are badly affected.
Another top tip from Miguel is around credit control:
“Many people went a little bit soft on their credit terms in the first lockdown, which is understandable, but that can’t go on. Put a proper credit control system in place and make it consistent. People tend to be scared off by having to chase for money but don’t be, if payments are due to you, chase them up. That’s just normal business.”
Rob Warlow also stresses managing payment terms:
“Are you managing your creditor terms – if someone is giving you 45 days are you taking it? In this case, there’s no need to pay in 15 days. Yes, you need to keep good relationships with suppliers, but you have to look after number one, and as long as you don’t go over your payment deadline, there’s nothing wrong with that.”
Rob also has one last tip – communication. He says:
“Keep your suppliers and lenders in the loop if there is a problem on the horizon. If you see a cash crunch coming, sometimes the natural reaction is to keep it quiet. But you actually get much more credibility and deepen your relationship with suppliers and lenders by engaging early in the event of a problem. Remember they will also be wanting to know where their cash flow position stands. The last thing they want is a call from the blue saying I can’t pay you this month. Their reaction will probably be ‘why didn’t you tell me earlier?’.”
If you would like support in planning your business’ funds for the year ahead – as well as coming up with a plan for your existing debt – contact us today.
2 EY ITEM Club Outlook for financial services, Autumn 2020.
The opinions expressed by third parties are their own and not necessarily shared by St. James’s Place or Wellesley Wealth Advisory.
Mental health vs COVID-19: It’s good to talk
With businesses of all sizes facing unprecedented challenges in the wake of the COVID-19 pandemic, it’s easy to see how owners’ primary focus is the ‘health’ of their business. But it’s important not to overlook your own mental health – and that of your employees.
In this article, we look at the impact of the pandemic on our mental well-being, how to spot the signs that an employee is struggling, and the importance of normalising the conversation about mental health at work.
Mental health has come to the fore during the COVID-19 pandemic, with worries relating to health, finances, social isolation, job uncertainty and home schooling among the main potential causes.
Experts have gone as far as to suggest that the mental health crisis is a pandemic of its own – in June, mental health charity Mind called it “The mental health emergency”, commenting that the pandemic “will leave a deep and lasting scar on the mental health of millions in this country.”1
And recent statistics for UK workers support this. New research by leading recruiter Wade Macdonald and workplace law specialist Doyle Clayton involving 150 HR leaders has found that three in five UK workers have experienced mental health issues since the outbreak of the coronavirus pandemic.2
Not a priority?
Moreover, a survey in September by mental health organisation TalkOut found that 35% of the 1,500 UK workers polled said their mental health was worse than before the virus arrived in the UK. Despite this, 56% said they hadn’t received any mental health advice or support from their employer since the pandemic hit and, importantly, 85% said they believed their mental well-being had not been among their employer’s priorities during the pandemic.3
Jill Mead, CEO of TalkOut, said businesses still had a “long way to go” to provide effective mental health support for employees, despite the issue being on their agenda for some time.
“Unfortunately, whilst businesses were quick to adapt to social distancing and working from home, for many, the emotional well-being of employees was an afterthought. But the psychological strain of the crisis is impossible to ignore and whether staff have been working on the frontline, furloughed or working from home, it’s likely to have a long-term impact.”
It’s clear that a number of worries experienced during the pandemic are job-specific – including worries over job security, salary cuts, furlough, the isolation of remote-working, and juggling working from home alongside home-schooling or childcare. For smaller businesses that have successfully weathered the storm, there’s a sense of not letting productivity slip and employees could therefore feel under pressure and could even ‘burn out’ as a result.
Reading the signs
In March 2020, a lot of businesses were thrown into the world of enforced homeworking, with the challenge of an entire workforce suddenly working remotely. The advice changed for a brief period in August, but in general the advice has been to work from home where possible. If your employees have been working at home for months, the isolation and new ways of working could be having a worrying effect on their mental health.
Although it can be more difficult to spot the signs that someone is struggling when they are working from home, there are things you can look out for. Julie Brophy, a business psychologist and Principal Consultant at Cambridge-based business management consultancy OE Cam, recently spoke to St. James’s Place about the red flags that can alert you to a remote employee who is struggling mentally.
She says that when participating in calls or video calls with your employees, you should look out for a change in the use of language, tone of voice and manner. Does anyone seem quieter and more subdued and are they using fewer positive adjectives than you would expect? Are they making less of a contribution in discussions than you would expect? Essentially: how are they compared to how they would normally be?
Bear in mind that they may not be responding in the same way in a video conference because that’s not the way they are used to holding meetings – and it’s harder to read body language on a video call than in person. The non-verbal cues are harder to pick up on, but you need to look out for things like whether they are sitting back more or coming forward into conversations.
Another indicator is a decline in the quality or speed of their work. Again, this must be balanced with whether they are simply extremely busy. Julie notes that there’s a lot of anecdotal evidence that people are going from video conference to video conference and so their days are absolutely packed. Also keep in mind that the employee in question could be taking on extra work because some of their colleagues have been made redundant or furloughed.
Leading by example
It’s up to business owners and line managers to look out for these warning signs. Julie explains:
“If you are seeing that someone isn’t contributing as much in a meeting, that’s the kind of discussion to take offline. Reach out to them one-to-one and just ask how they are doing. It shouldn’t be a performance-related conversation, just ask them how they are doing and how things are at home.”
Julie also says that at some businesses the structures that were put in place at the start of lockdown to support social cohesion and enable regular informal contact with employees have fallen away over time. Owners need to reassert these and put in place reminders for individuals to be contacted to see how they are.
Being a leader isn’t just about ‘people-managing’ – it’s about empowering and, importantly, reassuring your team. Despite any changes to the business and working practices, there’s likely to be a lot that has stayed the same – be sure to highlight these points to your team.
And don’t forget to practise what you preach when it comes to good mental health practices. Julie comments that leaders should be role models when it comes to behaviours in a remote environment:
“Perhaps at the end of a call you should say, yourself, ‘I’m just going to take half an hour and go out for a walk because I’ve been on calls all day and I just need to clear my head’. You should model that kind of behaviour.”
Starting the conversation
To conclude, then, it’s clear that one of the most important aspects of mental health is opening the conversation about it.
Many experts are in agreement that one (rare) silver lining of the pandemic is the idea of ‘shared experience’ – whether it’s anxiety, isolation or health concerns, many of us are currently facing similar challenges to our mental well-being, and we’re therefore talking about it more openly. Again, we use TalkSpace as an example. In a recent article they ask: ‘Could COVID-19 Be the Thing That Actually Normalizes Mental Healthcare?’.4
Indeed, the pandemic could create a turning point for mental health, and this should filter into the workplace. Look beyond your employees’ performance and see how they are feeling and coping with the current situation. Some may be fearful of catching the virus or may have suffered a bereavement during the pandemic, while others may be struggling with social isolation. Those who have been furlough on reduced salaries may have financial worries, while some may have underlying health issues that make them vulnerable. Some might be struggling to juggle childcare, while those on furlough could be worrying about job security.
Understanding these issues can help employers put together a plan that is specific to the individual, making your team members feel reassured and – most importantly – valued. TalkOut’s Jill Mead hits the nail on the head:
“A positive and supportive workplace can make all the difference when it comes to mental health and, now more than ever, businesses have a duty of care to their workforce.”5
Employees are the most important asset a business can have, and their mental health is vital to their overall well-being – and unleashing their potential at work.
The opinions expressed by third parties are their own and not necessarily shared by St. James’s Place Wealth Management or Wellesley Wealth Advisory.
Every minute counts: The digital landscape of 2020
Nobody could have predicted how 2020 would play out – COVID-19 rapidly unfurled across the globe, causing tremendous upheaval in every conceivable area of life and thereby giving rise to a colossal and historic digital transformation. Virtually all work and play had to migrate online, as a matter of survival.
Now, more than ever, data is continuously being generated, be it for internet searches, social media engagement, online transactions…the list goes on. Driven by the pandemic, the pace has accelerated in recent months and will undoubtedly continue whenever we move into the recovery phase. After all, going digital is no longer an option, but a necessity.
Look at this powerful graphic from cloud-based platform Domo, which gives some insight into how much data was generated in any given minute during 2020 – from the number of people participating in Zoom meetings to how many Instagram business profile ads were clicked on.
Which of the following statistics stand out to you?
Exit-ready: How to prepare your business for sale in 2021
Whatever your business, product or service, it’s important to forward-plan an exit strategy as soon as you’re considering the idea, especially in these current uncertain times. After years of hard work in developing your business, a strategic and in-depth exit plan is crucial to ensure you don’t lose out on your rewards. If there’s a possibility that 2021 will be the year you realise your business exit, read on to discover more about how to execute this to your advantage.
The COVID-19 pandemic has significantly impacted many business sectors, causing considerable uncertainty about the future. Some businesses have been fortunate to remain in a strong position as acquisition targets during the global crisis, whereas others have been forced to delay their exit plans until trading is such that the market is more buoyant.
Craig Hewitt-Dutton, Partner at LockDutton Corporate Finance, remarks: “No one can predict the future, but positive news about the pandemic – like a COVID-19 vaccine – could bring strong market growth in 2021, making it a very good year to sell a business. And it’s always the case that potential buyers will pay a premium price for the right business.”
Hewitt-Dutton goes on to say that private equity investors are nevertheless showing an interest – in part because some businesses have taken swift action and adapted to meet the changing needs of the market by diversifying, thereby protecting themselves against the ravaging effects of the virus. He adds that a new focus on purchasing UK companies in response to the end of the Brexit transition period is also highly likely.
Crawfurd Walker, Chief Revenue Officer for business growth advisors Elephants Child, states that the same fundamental rules generally continue to be valid if a businessperson is planning to exit in 2021, regardless of the business environment.
“Potential buyers will want to see a three-year business plan, sound trading figures and a good senior management team. As ever, they want to be confident about what they’re investing in – but even more so in this pandemic era.”
Adapt or perish
Hewitt-Dutton and Walker both concur that seeing how any business has dealt with the challenges of COVID-19 is a deciding factor in helping determine how appealing the acquisition is to prospective buyers. Walker illustrates this further: “Buyers will want strong management that changed the business model to make it more flexible and resilient to something like COVID happening again and whatever the future business environment will be.”
Walker adds that pre-sale negotiations and due diligence checks in 2021 could be more time-consuming and that deals might be put on hold until buyers have evidence of a business’ agility following “six months of ‘new normal’ trading”.
“It depends on the company, and the changing pandemic situation, but that could be six months from October 2020, or from 1 January 2021.”
Hewitt-Dutton notes that entrepreneurs who are planning to exit their business in 2021 should be mindful that a company carrying a debt burden will be more disconcerting than ever, while the remote working revolution means that the importance of a company’s property assets has diminished.
“The need for large, expensive-to-maintain offices is receding, and buyers prefer leased property rather than anything owned outright.”
Buyers wish to feel reassured that a company can boom in the absence of its founder, rather than business owners quitting as soon as the deal is done. Walker says: “Sometimes, the whole business is based around the owner, so, in the nicest possible way, you need to ensure that you’re ‘redundant’. Have structures in place so the board can run it without you. Otherwise, the buyer could insist you stay on for a number of years.”
Senseless to delay
A business will also be more appealing to potential buyers in 2021 by demonstrating that it has a contingency plan in place following the start of Brexit proper on 1st January. Hewitt-Dutton says: “That includes ensuring employees who are EU citizens have applied for the right to stay in the UK by the June 2021 deadline.”
However, Walker emphasises that a ‘sooner rather than later’ approach is preferable, so as to be in the most favourable position to exit at the right price.
“There are exceptions, but preparing properly for sale takes 2-3 years. If you temporarily put exit plans on hold because of the pandemic, review them again as quickly as you can so that you’re ready to sell in 2021.”
Above all, always think of your exit strategy as a transition plan – a way to get the money back out of your business. Here at Wellesley, our experienced advisers are confident that we can help you to prepare a successful exit plan as part of your overall business strategy and, by regularly assessing it, you can review your ongoing options. Contact us on 01444 244551 to take the first step towards meeting your strategic goals.
Exit strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place or Wellesley Wealth Advisory.
The opinions expressed by third parties are their own and not necessarily shared by St. James’s Place Wealth Management or Wellesley Wealth Advisory.