COVID Special
The world changed a few months ago and the early stage ecosystem in the UK was turned upside down. Finance for growth companies suddenly took on a whole new dimension.
The Novel Coronavirus has forced entire sectors into hibernation, businesses to shut down and brought with it a swathe of furloughs and redundancies, all whilst teams that can operate are working out how to work remotely.
Amidst all of this the UK Government has launched a bunch of support measures, and there has already been a bunch of stuff written about them, so here on FMFFF we’re not going to repeat what’s already out there, but give you our take on the stuff that’ll actually help you make a decision where to focus your energy.
As always on Five Minute Finance For Founders, your time is valuable, so we won’t waste it, that’s a promise.
The following are the best ways we know to get your venture’s cashflow recharged, quickly, with or without the government support.
CBILS v BBL
Don’t bother with the Coronavirus Business Interruption Scheme, you are highly unlikely to qualify for it – we approached each of the 40 odd approved lenders as it launched and if you were loss making before the pandemic, you weren’t going to qualify (lots of other stuff we could say, but why waste time?).
The Business Bounce Back Loan, on the other hand, should be accessible for most ventures, but some lenders are still figuring stuff out. We’ve had clients get cash in 48 hours, and others still waiting after a fortnight (and even different clients with the same bank have different experiences).
So if you qualify and apply, this is a quick way to get up to £50K into your account
Remember though, the business is responsible for paying back the loan, even with the 100% government guarantee.
Talk to HMRC
HMRC are currently deferring liabilities (including an automatic deferral of Q2 VAT) for businesses negatively impacted by the pandemic.
Speak. To. Them.
Get yourself into a plan so that you’re not having to find the cash immediately, that’ll give you a decent cash flow boost immediately, but remember, you’re still going to have to pay this down at some point.
Speak To Your Investors
Go to your existing investors right now, find out if they’ll invest again – don’t worry about taking the pain of a down round, the reality is that valuations aren’t going up anytime soon.
If they won’t invest, will they lend on semi commercial terms, maybe against your R&D claim?
If they can’t do that, can they introduce you to others that might.
Now is not the time to be shy, now is the time to make your case, we spoke to 60 investors and 21% are focussed on their existing portfolio alone.
The Future Fund
The Future Fund opened up yesterday, it was oversubscribed by 100% according to this Sky News article.
The reality is that this co funding by way of a convertible loan note (with some pretty intense terms as you can see from this SeedLegals post) is really only going to work for ventures with institutional investors. It’s not EIS compatible so most angel backed startups who haven’t raised an institutional round are going to struggle to find the £125K investment to get the match funding, and for those that do the reality is it’s probably a last resort.
What Else?
The pandemic has been a wake up call for a lot of bloated businesses with weak business models, the reality is that over the next 6 months those that have been overly reliant on external funding and haven’t focussed on their internal efficiencies are going to struggle.
So look at every cost, from the bottom up, remember that furloughing staff may be ok if you are going to reopen and be business as usual, but if you are going to have to make redundancies, plan them out carefully.
Crawl through the balance sheet, make sure there’s no-one out there who owes you money, chase them up and chase the cash down.
Similarly negotiate hard with suppliers, if you can stretch payments out, or get into a plan, do that, but wherever possible, have the conversation. Maintaining a good relationship will mean a lot on the other side of this.
Make everyone a sales person, I don’t mean cold calling left, right and centre but make sure that everyone on the team is looking at ways to maximise revenues.
Finally
It’s not going to be easy, and I won’t lie, a lot of startups aren’t going to make it past the next 6 months.
Do what you can to preserve cash, to extend runway and to take advantage of the options that are out there – this wasn’t meant to be an exhaustive post, rather five minutes worth of things you can try and do immediately to boost cash flow.
None of this is simple or obvious, so right now, we’re offering a 30 min free finance health check, just email us at [email protected] with ‘Health Check’ in the Subject line and we’ll get in touch.
Stay strong and let’s get back to building.
Aarish and the EmergeOne team
For a full list of UK Government schemes to support businesses during the pandemic see here.
For more information on the Future Fund, see here.
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