How to clean up your cashflow

In this article: As we emerge from lockdown, businesses that can rebalance and streamline their finances stand the best chance of surviving

Coronavirus has been nothing short of a disaster for many parts of the motor industry. At the beginning of spring, most businesses had to shut their doors and simply wait it out. And for those that have been able to stay open, the number of customers coming in has reduced massively.

The government has now started to ease lockdown, but it could be a long time before things truly return to something resembling normality. As a result, now’s the time to start thinking about how to adjust for whatever lies ahead. So what options are available to those who want their businesses to prosper as we come out of this crisis?

Time to talk

KPMG UK’s Head of Automotive, Andrew Burn, says that there are two main courses of action open to automotive businesses: looking at different cashflow levers, and making changes to their operating models.

“As business restarts, companies will be looking at cashflow, not profits, and leveraging their relationships with suppliers, landlords and others,” he says.

So, for example, it may be wise to start a conversation with your landlord about rent holidays or deferring payments, if you haven’t already. After all, cash is going to be at a premium, at least in the short term.

The same applies to any suppliers you work with. You may be able to use different ideas such as a debt-for-equity swap or a scheme of arrangement – a court approved agreement between a company and its creditors. These are used to reschedule debt, and a business does not need to be insolvent for these avenues to be available.

Also, don’t forget about the banks. “They remain supportive and will continue to serve businesses, but they may start to become concerned depending on how the industry and the economy develop,” says Burn.

Changing tack

If things do start to head south across the whole economy, it might be a good time to look at your business’s operating model. Could you change direction to make the most of the market conditions?

“If you’re a larger multi-site dealership, for example, perhaps you could look at streamlining your operations, and there could be value in looking at pop-up dealerships moving forward,” says Burn.

Another area to look into might be second-hand vehicles. As it released the lockdown, the government asked for people to avoid public transport wherever possible.

To some extent, that will force more people onto the roads in private vehicles, but not everyone will be able to afford a new car. According to data from Vertu Motors, there has been a significant rise in people buying used cars worth less than £9,000 as they get set to go back to work.

Painful cuts

Unfortunately, it’s likely that there will be a hit to the workforce in the months ahead, as firms reconsider the number of staff they employ.

Redundancies may be needed to keep businesses viable. Hopefully, government help such as the Job Retention Scheme will minimise any redundancies in your business, but that will be dependent on debt servicing and cashflow and will need to be given a great deal of thought.

The whole economy is facing some serious challenges as we come out of lockdown. If you can be adaptable and tap into the different cashflow levers available, you stand the best chance of success. Now’s the time to start planning.

For more advice on how to manage finances during these unprecedented times check out the IMI’s Cashflow Clinic with KPMG

This is an edited extract from IMI's new MotorPro magazine, received free as part of IMI membership. Time to find out more about becoming a member of the most influential community in UK automotive…?