Now that we’re slowly coming out of lockdown, it’s time to start to plan re-starting your closed business.
Whilst many small businesses could legally have stayed open throughout the lock-down, many closed, either because of social distancing (staff and/or customers), owners shielding, lack of customers, lack of suppliers, or shielding staff. Other small businesses have stayed open throughout, having been able to make changes pretty quickly at the outset.
Many businesses have already re-opened, albeit in a smaller or different way, such as restaurants offering a takeaway service or shops which are only taking telephone orders. As restrictions are lifted, more suppliers re-open and more potential customers are out and about again, more and more small businesses will be planning to re-open over the coming weeks.
Re-starting sooner rather than later (in a safe way) will help you in the longer term. You really don’t want to stay closed when your competitors are open, and the longer you stay closed, the more likelihood of your regular customers forgetting about you, changing their buying habits, etc.
There are plenty of resources on the internet about necessary safety precautions for customers and staff, social distancing, alterations to premises, etc which I don’t want to repeat. A good starting point is the Gov.uk website.
What I want to talk about in this post is the “financials” of re-starting.
First thing to think about are the costs of alterations to your premises, i.e. social distancing signage, temporary screens, new equipment, fixtures or fittings that you may need, etc. You should be eligible for tax relief on such costs, either as an expense against income or via capital allowances.
Secondly, are other incidental costs, such as cleaning/hygiene supplies for yourself, staff and maybe customers. Also in this heading, I’d include advertising and marketing costs relating to your re-opening, such as social media or local printed media advertising, development of a new website or app (maybe for online/advance ordering), etc. Likewise, these would normally be eligible for tax relief by reducing profits.
Thirdly, most closed businesses will have made a loss over the period of closure and re-starting. For some who’ve received government grants and support (which are taxable), the receipt of government help will reduce your losses, or maybe even turn a loss into a profit. If your losses are severe and you end up with a loss for the full tax year, then relief can be claimed against profits or prior or future years.
Finally, you need to think about “modelling” the finances of your re-start. Most business won’t be able to return quickly to “normal” as they’ll be re-starting on reduced working hours, or reduced product range, or they simply won’t be able to serve the same number of customers due to social distancing. You need to be realistic about your likely sales revenue in the first few weeks and months of re-starting.
From your sales forecasts, you can estimate your “direct costs”, i.e. costs of raw materials or stocks you need to make those sales. Then you can also think about what staffing you need to service those sales. If you’re open fewer hours and serving fewer customers, you may need fewer staff or you may need them for fewer hours, This ties in with recent announcements about the flexibility of the furlough scheme where part time working is to be allowed from August. Finally, your other expenses – break them down into fixed costs and variable costs. Again, some elements, such as bank charges, power, vehicle running costs, etc., may be a lot lower than usual due to the reduction in business activity.
Once you have all these figures, you can see how much profit or loss you may make in the first few weeks. This highlights whether your reserves are adequate or whether you may need to apply for a loan from one of the Govt schemes, such as their bounce back loan scheme. It may also highlight that with reductions in costs due to lower trading activity (such as fewer staff hours) you may actually make more profit (or make a smaller loss) than you’d have expected from much lower sales.
If any clients wish us to help them with their financial modelling or help with preparing cash flow forecasts or budgets, then I’ll be delighted to help.
On a related subject, if you’re current VAT registered, then the temporary closure of your business and a slow re-start over many weeks could mean that you’re eligible for de-registration from VAT, which may be helpful for your finances if your customers are mostly domestic customers (such as a shop).
