When companies should accept government aid

The dev­as­tat­ing effects of the pan­dem­ic on hun­dreds of thou­sands of busi­ness­es through­out the UK has prompt­ed chan­cel­lor Rishi Sunak to hose down the econ­o­my with eye-water­ing sums of mon­ey. 

Accord­ing to HM Rev­enue & Cus­toms fig­ures, as of Decem­ber 31, 2020, £49.28 bil­lion had been claimed under the Coro­n­avirus Job Reten­tion Scheme (CJRS) and, over­all, £71.79 bil­lion in loans had been approved across four main gov­ern­ment-backed schemes by Jan­u­ary 24, 2021.

Chief finan­cial offi­cers (CFOs) and oth­er senior finance staff have had to con­sid­er care­ful­ly what to apply for, how to use the mon­ey and how accept­ing sup­port from the gov­ern­ment might affect their busi­ness rep­u­ta­tion. 

Direc­tors of some large com­pa­nies tak­ing state sup­port to pay fur­loughed staff have been crit­i­cised after accept­ing pay cuts but then being reward­ed with gen­er­ous long-term incen­tive plans for hit­ting tar­gets. 

Mean­while, Tesco revealed it would be work­ing with the gov­ern­ment to repay £585 mil­lion it saved thanks to the coro­n­avirus busi­ness rates relief scheme after its sales actu­al­ly increased dur­ing lock­down and it paid share­hold­ers £315 mil­lion.

What fac­tors have CFOs been con­sid­er­ing when decid­ing whether or not to seek gov­ern­ment sup­port and, whether they’ve received any cash or not, what oth­er actions have they tak­en to shore up liq­uid­i­ty and their organisation’s via­bil­i­ty?

Decisive early action

“Tay­lor Wim­pey chose to utilise the government’s CJRS in April 2020 to sup­port the long-term sus­tain­abil­i­ty of the busi­ness and as a pre­cau­tion­ary mea­sure giv­en the uncer­tain out­look at the start of lock­down and through­out the height of the first wave,” says CFO Chris Car­ney, who worked close­ly with fel­low board mem­bers on the company’s strat­e­gy. 

“In times of uncer­tain­ty, it is impor­tant to take deci­sive ear­ly action to pro­tect the liq­uid­i­ty and resilience of any busi­ness, pri­ori­tis­ing the needs of employ­ees as well as wider stake­hold­ers.”

By June 1, all Tay­lor Wimpey’s employ­ees had returned from fur­lough. “We felt it was the right thing to do in the con­text of the resilient trad­ing and strength of the busi­ness. Despite the short-term uncer­tain­ty, we felt con­fi­dent the com­pa­ny was well posi­tioned and the mar­ket envi­ron­ment would con­tin­ue to be sup­port­ive,” says Car­ney.

While free­lancers have com­plained about get­ting almost no help, some small busi­ness­es feel they have also been giv­en less sup­port than their larg­er coun­ter­parts. 

“Fur­lough­ing met a gen­uine need for small busi­ness­es, but it con­cerns me we will all be pay­ing a big price for the many large, well-cap­i­talised and prof­itable insti­tu­tions that took advan­tage of this scheme like, for exam­ple, banks and wealth man­age­ment firms, which real­ly did not need to,” says Lawrence Gould, a part-time CFO and men­tor for a num­ber of small and medi­um-sized enter­pris­es. 

Struggling startups

Gould points out that some star­tups strug­gled to sat­is­fy the con­di­tions for the Coro­n­avirus Busi­ness Inter­rup­tion Loan Scheme and the Bounce Back Loan Scheme as they had not yet reached prof­itabil­i­ty. “A lot of these busi­ness­es would have become prof­itable employ­ers but, with the advent of COVID, have fall­en by the way­side,” he says.

Ben Adams, CFO at Get Nourish3d, a man­u­fac­tur­er of per­son­alised vit­a­min prod­ucts, says: “Fur­lough wasn’t real­ly an option for us as a start­up busi­ness. We have a small team with very var­ied and spe­cial­ist roles, and unfor­tu­nate­ly the fur­lough scheme didn’t allow for any flex­i­bil­i­ty. While some areas of our work­load decreased ini­tial­ly, we still need­ed our skilled team to be able to work through­out the cri­sis.”

As a result, Adams had to focus on what the busi­ness could do for itself. “I joined the busi­ness in March 2020, just before the first COVID-19 lock­down, so it was very impor­tant for me, as for any new CFO, to ful­ly under­stand the cash-flow posi­tion of the busi­ness, the key busi­ness dri­vers and all avail­able sources of fund­ing,” he says. “Until you ful­ly under­stand all these aspects, mak­ing deci­sions is dif­fi­cult and you can­not sup­port the busi­ness effec­tive­ly.”

Laser-like focus on cash flow

For most CFOs, whether they accept­ed gov­ern­ment assis­tance or not, there was one area that has required laser-like focus. “Cash flow is the most impor­tant thing to man­age in a cri­sis; it became the steer as to how we worked,” says Tam­sin Ash­more, CFO of Ulti­ma, an automa­tion and infra­struc­ture com­pa­ny that didn’t get COVID help. 

“I did three or four dif­fer­ent cash-flow mod­els a day look­ing at all the dif­fer­ent sce­nar­ios and assessed how we want­ed to work with our cus­tomers. Keep­ing an eagle eye on cash has meant we haven’t writ­ten off any debt this year. We’ve been so focused on how we work with our cus­tomers and how we assess risk, that is how we have been cash gen­er­a­tive through­out this peri­od.”

Colleen Arm­strong, finan­cial con­troller at Per­cy & War­ren PR, advis­es: “Spend time build­ing strong rela­tion­ships with your clients’ account­ing teams. Don’t assume that a big­ger com­pa­ny isn’t fac­ing the same type of pres­sures, with staff fur­loughed and oth­ers work­ing remote­ly; a per­son­al con­nec­tion will always be bet­ter received. Cred­it check your new clients and always have signed con­tracts with clear deliv­er­ables, scope of work, billing sched­ules and pay­ment terms.”

Some CFOs chose to access gov­ern­ment help while mak­ing tac­ti­cal cash-preser­va­tion changes and under­go­ing sig­nif­i­cant restruc­tur­ing. British Air­ways was one very promi­nent case, but Rolls-Royce, also hit by the col­lapse in air trav­el, under­took a vari­ety of mea­sures, both tac­ti­cal and strate­gic.

The require­ment to bol­ster its liq­uid­i­ty posi­tion as it worked on what it calls “self-help” mea­sures was a major con­sid­er­a­tion for the company’s finance team.

Rolls-Royce says: “Sub­se­quent­ly, in April, we announced plans to con­serve more than £1 bil­lion in cash in 2020 through a range of mea­sures includ­ing a group-wide 10 per cent salary defer­ral and addi­tion­al 10 per cent senior man­age­ment pay cut for the rest of the year. Then, in May, we announced a fun­da­men­tal restruc­tur­ing of our busi­ness to save £1.3 bil­lion annu­al­ly by the end of 2022 to deal with the medi­um-term impact the pan­dem­ic has had on the whole avi­a­tion indus­try.”

Reputation is a major consideration

In mak­ing a deci­sion about whether to access gov­ern­ment finan­cial help, many CFOs have also con­sid­ered the optics. “Rep­u­ta­tion was one of sev­er­al con­sid­er­a­tions in our delib­er­a­tions; how would it look for a suc­cess­ful City law firm to be sub­sidised by the tax­pay­er?” says Jer­ry Mer­ton, CFO of Bris­tows, a law firm spe­cial­is­ing in life sci­ences and tech­nol­o­gy, which didn’t take gov­ern­ment sup­port and sus­pend­ed part­ner dis­tri­b­u­tions instead. 

Com­mu­ni­ca­tion has been cen­tral to his strat­e­gy. “We realised we’d have to increase the lev­el of com­mu­ni­ca­tion with all our staff to explain what we were doing. We also com­mu­ni­cat­ed reg­u­lar­ly with our clients to assure them we’d con­tin­ue to be there to give them the legal sup­port they need,” says Mer­ton.

Ron MacEachran, CFO of Isle of Har­ris Dis­tillers, has had a sim­i­lar focus. In par­tic­u­lar, he’s been con­cerned about “the abil­i­ty to engage pos­i­tive­ly in the mar­ket, main­tain­ing both our pro­file and a great lev­el of cus­tomer ser­vice, with­out the risk of short-term liq­uid­i­ty pres­sure”. He adds: “It is vital to main­tain a close and open rela­tion­ship with your key fun­ders – investors and banks – giv­ing them the best oppor­tu­ni­ty to sup­port your short-term needs to facil­i­tate medi­um-term sus­tain­abil­i­ty and devel­op­ment. It was this rela­tion­ship and line of com­mu­ni­ca­tion that allowed us to get the sup­port we need­ed from HSBC.”

Aman­da Mur­phy, head of com­mer­cial bank­ing at HSBC UK, says: “We encour­age busi­ness­es to keep talk­ing to their bank, whether that be about the gov­ern­ment lend­ing schemes and what com­pa­nies need to do next or invest­ing for growth. There will always be oppor­tu­ni­ties for busi­ness­es that have built capac­i­ty, flex­i­bil­i­ty and agili­ty into their oper­a­tions to grow.”