Top tips for businesses from our commercial legal expertsJuly 14, 2020
For the last few months, our commercial team at Ince Metcalfes have been supporting our corporate clients navigate the Coronavirus crisis. Now, as lockdown measures are eased across the UK, we will be preparing these businesses for life on the other side of lockdown.
Our commercial teams have compiled ten of their top tips for businesses in the current, post-lockdown climate. Every day this week, we will be sharing two new tips from each of our commercial departments.
Lydia Cammiade, Trainee Solicitor
1. Employers should make use of the Flexible Furlough Scheme, which runs until 31 October, to match staffing levels to business demand as the economy re-opens. Businesses can bring furloughed staff back to work on a part-time basis, and still claim wage costs under the scheme for hours not worked.
2. Keeping your employees safe as they return to work is crucial. A Coronavirus risk assessment must be carried out to ensure your premises are “Coronavirus Secure”. Then, employers should implement a safe system of work and ensure that this is followed by staff based on the results of the risk assessment. Social distancing between work stations, staggered start times and more frequent cleaning are some possible measures businesses can implement.
Edward Chapman, Managing Associate
6. As cashflow is now of paramount importance, our company clients are reviewing their commercial relationships. Locate and review your terms and conditions and any other agreements you have with your customers and suppliers. In particular, you may wish to consider termination rights, to exit non-profitable contracts or arrangements that have not developed as expected. It is often possible to vary terms of existing contracts with the consent of both parties, and again the wording of the contract needs to be reviewed closely. Previously, the insolvency of a party would be a ground to terminate a commercial contract. However, as of 26 June 2020 and due to the recently introduced Corporate Insolvency and Governance Act 2020, it has become difficult to terminate for this reason.
7. Cash is king and ensuring you have sufficient funds for day to day operational and working capital needs is crucial in the current circumstances. The government has launched, through the British Business Bank, a variety of programmes to help support businesses impacted by the Coronavirus pandemic. For owner-managed businesses and SMEs the most relevant is likely to be the Bounce Back Loan Scheme. This provides a term loan of between £2,000 and 25% of a company’s turnover (up to a maximum of £50,000). The term is 6 years, there are no set up fees and there is a competitive fixed interest rate of 2.5% per annum. The first 12 months of interest payments are covered by the government and borrowers do not have to make any repayments in the first 12 months. Anecdotally our clients have found that high street banks have advanced sums to existing customers within 48 hours of an application being made.
Larger companies should consider the Coronavirus Business Interruption Loan Scheme and Coronavirus Large Business Interruption Loan Scheme, though it should be noted that obtaining funding through these schemes is a lengthier process with more hurdles to access funding.
The final scheme of note is the Future Fund, which is targeted at fast growth companies which rely on equity investment (for example through angel investors and private equity firms). This offers matched funding in the form of a convertible loan, ranging from £125,000 to £5,000,000. Companies will have needed to have previously raised a minimum of £250,000 in equity investment to be eligible for this scheme.
While government support is welcomed and some of the terms (in particular with the Bounce Back loans) may look attractive, it should be noted that all of these schemes are loans and involve taking on debt. You should consider the impact this will have on your company down the line. Our top tip is to consider all funding options that are available to you to ensure you choose the best option for your business. Our Corporate team are happy to discuss the government schemes and other funding options that are available.
8. While the current pandemic has led to a pause in transactional activity, we are of the view that buyers will return to the market sooner rather than later. Buyers that have cash reserves will be in a strong position and are likely to take advantage of the circumstances to acquire companies with cash flow issues at favourable prices. That said, if you are a business owner with half an eye on an exit, now is the ideal time to start planning and to get a team of advisors in place to help you get ready for sale.
We advise that you start those conversations early, as this will help you ascertain what you are really looking to achieve from a sale and what is your ‘magic number’.
Our corporate team can help by carrying out a mock due diligence exercise. This will not only help you prepare for sale, but also may uncover issues which can be resolved before a buyer is on the scene. By dealing with these issues in advance of a transaction, you can maximise the value of your business and ensure a smoother and faster sale process when the time comes.
Natasha Bliss, Partner and Head of Dispute Resolution
9. In order to determine your terms and conditions are offering your business the best protection, it is important that you keep them up to date. This will put your company in the best position in the event of dispute or non-payment by a customer. In order to do this, you should ensure that your terms and conditions have:
- A retention of title clause; to protect yourself in the event that a customer becomes insolvent or has failed to pay you for goods provided by you and you need to recover those goods;
- A clause that entitles you to recover your costs from the customer should you need to take the customer to court for non-payment; and
- Up-to-date interest terms.
10. If you are concerned about your finances, whether you are an individual or a company, it is important that you take positive actions immediately. By failing to do so at the earliest opportunity could mean that the matter is taken out of your hands by your creditors or that your options become more limited. We can provide you with assistance with practical personal and business solutions as to managing this difficult time whether it be through talking with your creditors directly or considering finance options, so please contact us.