This week we spoke to David Kendrick from UHY Hacker Young. David heads up the team who are responsible for over 1/3 of all Automotive retail mergers and acquisitions in the UK.

As one of Europe’s top advisors, David kindly offered up his time to help car dealers and automotive businesses to better navigate the current market challenges.

How can businesses best manage their cash flow whilst they’re making limited revenue? 

David – “Get as much cash around you as you can and try to limit, within reason, the amount of cash outflow from the business. 

There’s now obviously things like the VAT holiday that has been introduced by the government. So that’s great from a cash flow benefit, but obviously people just need to be aware that they do have to pay that back. 

Businesses also need to be aware that you still have to submit your VAT return, but you won’t have to make the payment.

That’s a really helpful cashflow benefit for businesses. You just need to make sure that you don’t go and spend it or it might create a cash flow problem later down the line. 

Some of our clients have contacted HMRC and managed to get a holiday on their PAYE as well. So again, a nice cashflow benefit. We just need to bear in mind that these are holidays on payments, not waivers on payments and they are going to have to be paid back.”

What is your best advice for dealers forecasting their cash flow?  

“Dealers need to ask themselves, what does the next three or six months look like? If you model that out from a cash flow point of view, are there any pinch points? Are there any major expenses coming up? The other key area that dealers need to consider is what the cash burn looks like when lockdown is relaxed and the business looks to re-open properly – Will there be a requirement for all staff on day 1? Will car sales be as buoyant as previously? Will consumers be concerned about going out? – I believe that it will take some time before the business returns to anywhere near typical levels, maybe up to 12 months and this will have a significant impact on cash.”

Should all businesses take advantage of the VAT deferral – or are there some caveats to this?

“Our advice for the moment is absolutely take advantage of it because having cash around you in uncertain times like this is critical. The bottom line is those who have cash in their bank account can make their own informed decisions.

Cash is king as they say. 

Businesses just need to make sure they have some controls in place and ensure they don’t get carried away – don’t spend the cash unless you really need to. 

My biggest advice is control and discipline. Future forecast to make sure you can repay it and have a plan.”

See the governments guidance on VAT deferrals.

Is the VAT deferral automatically applied or do you have to contact HMRC? 

“On the VAT side you don’t need to do anything. 

On the PAYE side of things we’re encouraging people to contact HMRC.

Call HMRC on 0300 200 3200.

The PAYE break is referred to as ‘time to pay’ and is described as being for businesses and self-employed people that are in financial distress and have outstanding tax liabilities. However, I don’t think people need to necessarily be in financial distress to make the call to HMRC. 

If you want to try and retain more cash in your business why not give them a call? 

My understanding from clients that have called HMRC is that it’s a very straightforward and quick process. 

One of our clients said they didn’t want the VAT break, they felt the temptation to spend it would be too high. 

If you’re concerned, you can always transfer it into another account so you don’t see it on a daily basis and you know it’s ring fenced. 

Clearly some businesses are going to be struggling for cash immediately, they’re the ones who really need to make sure they’ve got a plan for how they’re going to return to profit and generate cash when things return to normal.”

What is your advice to businesses considering applying for a government backed loan?

“It’s all around planning. Depending upon the amount you apply for it can be an interest free loan for the first 12 months, but it is a loan – it’s not a grant – it’s absolutely a loan. So again, people need to be mindful. Those larger businesses won’t be able to access the interest free loans, however the rates we have seen on the larger loans are very attractive rates so worth considering.

Ultimately it’s about understanding what you need as a business, and demonstrating why you need it. Have you taken the relevant actions as a business? As shareholders are you reducing your remuneration out of the business to help support it in that time period?

Have you taken the appropriate action on cost cutting measures? Banks are looking for businesses who are acting responsibly during this period and taking the sensible measures that you would expect when we’re in a kind of distress situation.

I think businesses absolutely should treat it as any other debt in their business.

You want to make sure you get the right amount for your business’s books. There’s no point getting something that is excessive if you are then going to burn through it irresponsibly and have a problem paying it back.”

Find out more about the Coronavirus Business Interruption Loan Scheme (CBILS)

Is there any other support businesses should be seeking right now? 

“I think the other thing people are doing is that they’re in dialogue with landlords and key suppliers around support. 

Some dealers are speaking to their landlords and just saying, can we have a discussion around the rent payments? Can we have a rent holiday? Can we repay it over the next 12 months when we can afford it and can it be added to the term of the lease?

If you don’t ask, you don’t get.”

Need some more advice? Contact David and his team.

For more support during Covid-19 join Neil Smiths ‘Help For Car Dealers & Automotive Businesses During #Covid-19‘ LinkedIn Group or request to join his confidential WhatsApp group Exclusive to CEOs, Owners or Directors of a car dealership only.