Why is the situation so precarious?

When the Prime Minister announced that the full lifting of lockdown would be delayed a further four weeks until July 21st, the hopes of hundreds of thousands of restaurants, pubs, nightclubs, takeaways, bistros and many more firms are, once again, hanging by a thread.

The Night Time Industries Association (NTIA) conducted a flash survey of 300 of their member businesses this week in anticipation of disappointing news and found that one in four said that they would not last more than a month without further assistance if restrictions were extended. 

Half of respondents said they would have to close permanently if the restrictions went on for longer than that. 54% had already spent over £15,000 in preparation for reopening on June 21st while a small but significant minority, 17.8% had spent over £40,000.

One in five estimate they’ll lose over £40,000 in revenue every week they are restricted or closed while as many as 58% will lose over £10,000 and over a third – 33% – said they will lose 30% of their workforce with a delay. 

NTIA Chief Executive Michael Kill said: “Distressed industries cannot continue to be held in limbo, as businesses are left to fall, any decision to delay without clarity on when they can open will leave us no other option but to challenge the Government, standing alongside many other industries who have been locked down or restricted from opening for an extreme length of time, through no fault of their own, and at their own cost.”

NTIA is also campaigning for the government to extend the temporary 5% reduced VAT rate on hospitality, which is due to rise to 12.5% at the end of September. 

“These businesses are overburdened with debt, so any decision to delay will make them heavily reliant on the Government to extend financial support and relief, including additional restriction grants, exclusion from furlough contributions, extension of loan repayment holidays for CBILS and bounce back loans as well as business rates and VAT relief for the next 12 months, not forgetting the £2.6 billion in commercial rent debt left unresolved” said Michael Kill. 

Bounce back loans – how much was borrowed where you live?

Pubs and bars are also in the firing line with the British Beer and Pub Association (BBPA) estimating that the delay will cost the industry £400 million collectively.  

BBPA Chief Executive Emma McClarkin said: “Every week the current restrictions stay and uncertainty continues, the likelihood of pubs being lost forever increases. 

“Our pubs require as a minimum an immediate three-month extension to the business rates holiday, the ability to defer loan payments due now and a further extension of VAT support. Grants for businesses particularly affected, such as those pubs who cannot still reopen because of the current restrictions, must now also be put in place. 

The ongoing restrictions combine with the following negative factors to form the following timeline of trouble:-

  • June 23rd – quarterly rent is due for March to June inclusively
  • June 30th – ban on commercial rent evictions ends and ban on winding up petitions and creditors actions due to be lifted
  • July 1st – Employers begin contributing 10% towards staff furlough costs and the 100% business rates relief drops to 67%

When you factor in the aggressive approach lenders are beginning to take to recover unpaid bounce back loan and CBILS debts, some with personal guarantees attached for directors, then it looks like it could be a cruel summer for these business owners. 

Dr Roger Barker, Director of Policy with the Institute of Directors likened the evolving situation as a “cliff edge” stating that any public health measures must be matched with economic ones. 

He said: “Clearly this is a blow for many businesses but particularly those in the retail and hospitality sectors. 

“As government support for business ends or begins to taper off, it’s vital that other support is pushed out commensurately with the lockdown extension.”

His fears are shared by other groups including the Federation of Small Businesses (FSB), UKHospitality and the British Chambers of Commerce. 

Craig Beaumont of the FSB said: “Businesses in the night time economy have had five quarters of no revenue whatsoever and for everyone else, the chopping and changing makes it impossible to plan and mitigate against the difficulties of restricted trade.”

He also added that the ability to defer VAT is also due to end in June and that “a third of those who deferred their VAT have yet to agree to a repayment plan.”

The British Chambers of Commerce are calling on the government to provide further cash grants at least equivalent to levels provided during the first lockdown and to delay the tapering of furlough payments.

UKHospitality, who estimate their members would collectively lose £3 billion in sales from a one-month delay are lobbying for business rates payments to be postponed until October and for hospitality businesses to receive a rent and debt moratorium until a longer term solution to Covid arrears is found.

The Scottish government has allocated a combined £25 million in the funds for cultural organisations, venues and performing arts organisations to apply to help “prevent insolvency or significant job losses due to the ongoing impact of the Covid-19 pandemic”. 

But any business looking for additional support from the Chancellor will be disappointed as the Treasury confirmed that no additional support will be forthcoming to cover the next four weeks. 

A spokesperson for the Treasury said: “The furlough scheme is in place until September – we deliberately went long with our support to provide certainty to people and businesses over the summer.

“The number of people on the furlough scheme has already fallen to the lowest level this year, with more than 1 million coming off the scheme in March and April.”

Why the delay could be critical?

Chris Horner, insolvency director with BusinessRescueExpert, thinks that while the news is disappointing for thousands of businesses, now the decision is made they can begin to act with more certainty to secure their futures. 

He said: “Even businesses that could fully reopen on July 19th, might not be in a viable position to resume trading with another four weeks of debts building up on top of the previous 16 month’s worth. 

“Businesses that gambled on a June 19th reopening will be counting the cost of purchasing supplies and bringing staff back in expectation but now have an additional four weeks to wait. 

“The confirmation that winding up petitions and the ban on commercial evictions will both resume on July 1st will also be a blow to many businesses as now action can be taken by creditors to begin to recover outstanding debts. 

“Directors and business owners should use this short time before the end of the month to get some professional advice so they can put into place business rescue strategies ahead of these changes taking effect. 

Insolvency moratoriums, administrations and company voluntary arrangements all allow a business to begin the restructuring process with protection from creditors seeking repayment – this could be a crucial first step to saving an otherwise viable business.

“Alternatively, liquidation could be the best solution if debt, including bounce back loans or CBILS loans, is just too high a barrier for the firm to overcome.

“Whatever is the best solution for them – they need to act on it and fast.” 

For businesses that need to reopen but can’t – time is running out. 

The announcements confirming the extension of the lockdown restrictions coupled with the relaxation of some of the legal protections for businesses means the next two weeks are when critical decisions must be taken for companies in financial distress.

Some might have a pathway back to profitability after a temporary period of restructuring, others might have no option but to close down but they can do it efficiently and solve their outstanding debt issues before being able to reform and begin trading freely as a new company once restrictions allow them to. 

The only way they can do this is if they act quickly and get in touch with us to arrange a free initial consultation with an expert advisor. 

They will accurately summarise the options available to them, what they need to do to take advantage and how they can begin to solve their outstanding issues in time to return in Autumn leaner and stronger.

The alternative is the bleak scenarios forecast for businesses since the lockdowns began coming true – and soon.