Post-lockdown Intel for Company Directors

Are you a company director seeking guidance as we exit lockdown? Want to know the potential pitfalls and opportunities that lie ahead? To help you chart the way, here’s our intel on 5 areas on which Company Directors need to be aware.

1. Dividends timebomb?

If you’ve taken dividends this year, you need to be sure the business they come from is profitable. Otherwise HMRC will treat the dividend as a director’s loan, and you’ll need to pay it back.

Driving this concern is the fact that, during the pandemic, 1,000s of businesses have taken out bounceback loans and CBILS. And this is disguising the true financial positions of many – particularly those who’ve been granted an extra three months to file their annual accounts.

If a director’s loan isn’t paid back to the company within nine months, it triggers a Section 455 tax charge of 32.5 per cent. That would cost you £16,250 on a £50,000 loan.  Such costs can be avoided if you plan ahead now.

 

2. Forecast or fail

Now, more than ever, it’s key that you can carefully forecast your cashflow. Generous government grants, and cheap, relatively unsecured loans have bolstered cashflow for many businesses. Likewise the furlough scheme and business-rate grants. But soon you’ll need to start paying back any grants – even if you’re not yet reaching normal turnover.  Do you produce a cashflow forecast to plan ahead for this or do you need professional assistance?

 

3. To up the ante, be up to date

Ensure you obtain monthly, or at least quarterly, monthly management accounts. This is essential as many firms have suffered a fall in profits – revealing issues not seen when operating at pre-pandemic levels. We liken it to the tide going out further than ever before and exposing rocks that have always been there, but covered up.

For example, you may find yourself questioning spend and working capital cycles that may have otherwise gone unchecked. Accounts, as up to date as possible, give you the intel to make the right decisions, fast. Are you able to undertake a detailed review of your monthly or quarterly accounts? Relying on just annual account summaries could leave you open to risk if you’re unable to spot potential problems in time.

 

4. Get set for stormy waters

To keep your business on an even keel, be sure you’re prepared for inevitable changes in trading conditions. One peril could be a bad set of results filed at Companies House. This could reduce your business’s credit terms with suppliers, and drive customers to go elsewhere. It could even spark rumours your firm is in trouble.

Since some will have to report poor results filed over the next few months, our advice is to make sure you mange this carefully, perhaps by sharing better news with the outside world, such as updated management accounts or forecasts.

 

5. Sell up or buy up?

Is now the time to sell your business, or to buy another? We’re seeing many owners wanting to move loss-making firms on because they not worth the blood, sweat and tears. But, in our experience, few businesses are truly worthless.

On the other hand, if you’re looking to expand, hit your goals faster, or make your business life easier, buying another firm can help. OK, you might not want to pay a fortune up front for a currently unprofitable business. But there are are often more creative ways to fund such projects, and we can advise you on these.

 

If you’d like to discuss any of the points discussed in this blog, please get in touch