Insights

Updated: 25 September 2020

As confirmed by the government, furlough grants are set to end in October 2020. If your business revenue has taken a hit and you have relied on this support, you may want to start thinking about the next phase.

Details of what to do after furlough grants are withdrawn are available in our article - how could the Winter Economy Plan help you? read here

How does the final phase of furlough work?

The original furlough scheme has changed and between now and 31 October 2020, it is possible to bring back employees on part-time basis whilst still claiming furlough support for the hours they don’t work.

From 1 August 2020 onwards, national insurance and pension contributions for furloughed staff must be paid by their employer. From August, while employees on furlough will continue to receive 80% of their salary for the hours they don’t work, the proportion of pay that the government will pay for hours not worked will then be reduced each month; this drops to 70% in September and 60% in October, with employers having to make up the difference.

Once the furlough scheme ends on 31 October a new incentive will begin, to encourage employers to re-employ their employees. This is a £1,000 cash incentive paid to employers for every employee brought back from furlough at the end of October, who then remains in employment until the end of January 2021. In spite of this, many companies are already announcing large scale redundancies.

As can be deduced from all these changes, in order to plan ahead for the coming months, a solid business cashflow forecast will be essential. This is tricky to estimate given that the financial outlook is very uncertain, and some industries will find it harder than others. The economy shrank dramatically during the last quarter and it is impossible to predict how consumer demand will be affected.

In many sectors serving the general public – leisure, retail, hospitality, travel, entertainment and beauty – trade is unlikely to recover quickly given the current job uncertainties. Some smaller firms will also struggle to satisfy re-opening requirements around ensuring staff safety and refitting their premises to comply with social distancing rules. These can become significant expenses and there are also no guarantees customers will return in their pre-lockdown numbers. If your business is impacted, you may need to diversify and find new ways to serve your customers.

When preparing a cash flow forecast, we would usually advise being ‘cautiously optimistic’; don’t over inflate your prospects but at the same time, be positive.  Now, given the economic conditions and threat of further local spikes and lockdowns, we would suggest planning for a worst-case scenario to be as prepared as possible with a financial back up strategy.

If your business has not done so already, it is still possible to apply for the government’s emergency loan schemes. So far these have provided billions of pounds with demand strongest for Bounce Back Loans, the 100% state-backed scheme for SME businesses.

The Bounce Back Loan Scheme (BBLS) provides loans of up to £50,000 and will be available until 30 November 2020. We have written about this scheme in an earlier blog: how to apply for a bounce back loan.

If you would like some help with reviewing your cash flow forecasts and preparing management accounts, please get in touch via partners@rjp.co.uk