COVID19, PROFITABILITY, CASHFLOW AND INSOLVENCY

COVID19, PROFITABILITY, CASHFLOW AND INSOLVENCY
Yesterday, Tesco released its latest trading numbers. Whilst most businesses can only dream of the profits generated by the UK largest supermarket, there are lessons as small business and SME’s need to bear in mind as the economy improves and the business support initiatives are reduced in their scope.
The accounts show a significant rise in turnover, revenue growing by 7% to £53.4 billion. However, dropped by almost 20%, from £1 billion to £825 million, this fall being largely to the need to spend nearly £900 million on the costs of dealing with the pandemic.
All through the various “lockdowns”, supermarkets were classed as essential retailers, (much to the chagrin of smaller specialist traders), they thus benefitted from continued trade, even in non-essential items such as clothing and electricals. Tesco said its strong sales growth was boosted by a 77% rise in online sales.
However, this trade came at a price, additional costs including:-
• Giving full pay to staff off work ill or shielding.
• £535 million repayment of rates relief.
• Additional cleaning and sanitising costs
A partner at the retail consultancy TPC, is reported as saying that trading through Covid came at a cost. “In order to [trade through the pandemic], they’ve had to spend a lot of money looking after the health of both their customers and their staff and that’s been very, very costly,” he said.
As mentioned at the outset, smaller companies need to learn from the experience of Tesco, especially the need to identify the additional costs incurred by their business and thus understand the effect of future cashflow and profitability. Which additional costs are of a temporary nature and which are long term?
How quickly can turnover increase back to pre-pandemic levels and what processes can be improved to increase profitability?
What has happened to the levels of debt owed to creditors and how can this debt be managed?
Whilst considering these questions, and others like them may not be easy, it is more essential than ever to assess the viability of the business going forward. The last twelve months has seen a number companies with household names entering administration, voluntary arrangement (IVA & CVA) and liquidation. No doubt as lockdown ends, other companies will face similar challenges.
Source: BBC Business News
T H Financial Recovery work with both individuals and businesses in financial difficulty. If your business is facing problems and you need advice on the options available, such as new funding, business restructuring or help with insolvency procedures as noted above, we can help. If you are feeling uncertain about the future, a confidential, no obligation chat with one of our advisors will almost certainly be of benefit. Please do not hesitate to call T H Financial Recovery on 01282 332222, 01772 641146 or email info@thfr.co.uk and someone will come back to you at a convenient time.