9:05 am, April 25, 2020
One of the top 20 chartered accountants in the UK has shared its top tips for car dealerships trying to stay financially afloat during the Coronavirus crisis.
UHY Hacker Young corporate finance partner David Kendrick and audit partner Paul Daly appeared on Car Dealer Live on April 17 to answer questions relating to keeping your finances in order during this time and understanding the new regulations, grants and loans.
They had some top advice specifically for car dealerships and dealer groups, which you can see in full by watching the video.
1. Get written confirmation
A big topic across the country is furlough, with more than nine million people now placed on the scheme that will see the Government back 80 per cent of their salaries up to £2,500.
New guidance on the topic is coming out all the time and Daly explained that it’s now been revealed that consent is required from employees.
‘The legal direction for HMRC has now been issued. One of those points is the need to get consent from the employees for furlough,’ he said on the show.
‘Get that written confirmation, it doesn’t need to be backdated and can be done via email.’
2. Keep records of the guidance you read
As Daly continued, the record keeping during this time ‘will be crucial’.
‘These things will be paid,’ he added, ‘a bit like a self-assessment, years down the line someone will look at it.
‘Because this guidance is ever changing, keep screenshots and records of what you use as guidance is vital.’
3. All contracts are different
Although it was revealed that commission can be paid, that doesn’t mean all dealerships are paying it.
The words ‘discretionary’ and ‘compulsory’ are now causing further confusion, and as Kendrick explained ‘we’ve got to be careful that this doesn’t become a legal battle’.
‘Last week there was a good feeling among dealers that commission would be paid and then this guidance was released,’ he said. ‘I think it’s very very grey and that’s not very helpful from a dealer perspective.’
‘The worry we now have is that if you take a pessimistic view on this perhaps commission shouldn’t be included. We’ve spoken to some of the larger groups and I think a lot of them are taking the view that commission is being paid, but dealers need to be aware there is a risk.’
The problem arises because all contracts are different, so Kendrick pleaded: ‘Please share your contracts with your lawyers and get some guidance,’ he said. Not only that, he added that differences in business interruption insurance contracts also mean they’ve seen some which are covered during the Covid-19 crisis. ‘A lot don’t but some do’.
4. Share with your stakeholders
‘If there are concerns they need to be shared with relevant stakeholders like banks,’ warned Daly, who said it can be tempting to stick your head in the sand but it’s never a good idea.
‘A good example of that is a client of mine who did have a good forecast and thought they were going to be OK, but the assumption they made around manufacturer bonuses coming in last week was actually slightly out of kilter.
‘Those bonuses came in a few days late which meant they breach the overdraft facility but because they were in regular contact with the bank and they knew what was going on they were relaxed about it. I’m not sure things would have been the same if they didn’t have that intelligence in front of them.’
5. Work out your cash burn – not just your cash flow
Daly explained that he had been shocked by the number of businesses who don’t know the costs associated with their business when there’s no money coming in.
‘Have a sensible short term cashflow in place. It sounds obvious but when I’m talking to people there’s a lot who don’t realise what their monthly cost burn is. The picture looks very different at the moment with no money coming in. You need to have a real handle on the cash burn.’
6. Cash is king
Many businesses have learnt lessons from the 2008 financial crisis, and while Kendrick stated it was a very different situation he also said ‘those businesses that had cash in the bank were the ones who ultimately came out stronger. I think people are applying that same principle here.’
He added: ‘Actually having access to cash at the moment is important. We’ve got other groups in a strong cash position but they’ve decided to fund as much of their used vehicle stock as they can because they want to see cash in the bank.’
7. Get a government-backed Business Interruption Loan
If you’re not someone with stacks of cash in the bank, Kendrick advised ‘there is money available out there’.
He said: ‘For those businesses who do feel the need to look at the loan scheme for support we would very much encourage you to speak to your bank contacts. Certain banks seem to be a little bit more responsive than others.
‘Cash is king at this time, so when we’re talking to clients, having as much cash around you as possible is really good, even if there’s more cost to it in the short term.
The Business Interruption Loan certainly at the lower end is interest free for the first 12 months, so even if you don’t necessarily need it, it’s worthwhile looking into. If it’s repaid in the first 12 months with no interest then great.’
8. Be prepared and persistent
For those businesses looking to take advantage of the government backed loan scheme, the pair had some advice on the best ways to approach it.
Firstly, Kendrick said to be prepared when you get in touch with your bank. ‘Have the information ready that you think you’ll need. Have an idea of what your shortfall might be and be persistent.’
He explained that it appeared those who are persistent with calling the bank have already received their money. ‘I think those who are waiting for the bank to call and say they’ve got the money, perhaps that won’t happen because the banks are so busy.’
9. Don’t be put off – it’s getting easier
Kendrick continued that ‘as time has passed the money has become more accessible and some of the red tape that was there in the first instance has been removed’.
Daly was able to explain in more detail that those he’s helped apply.
He said: ‘Some of these have been in the sub-£45 million and they’ve not had the early repayment charges with them
.‘It has been an evolving situation and what started off as a mission impossible to get these loans is now something that is much more straightforward, albeit you do need to have this financial information’.
10. Don’t expect the generosity to last
Although banks are being as helpful as they can be and some businesses are seeing a lot of support and understanding from partners, Daly stated that taking out a Business Interruption Loan ‘is absolutely the right thing to do’ in his opinion, because this may not last moving forward.
‘While the banks are being supportive now and there’s lots of help from the stock financiers etc, I don’t think you can assume in your business planning that that is going to remain the case as we go into Q3 and Q4 in particular.
‘Speaking to risk contacts I’ve got at the manufacturers that’s where they expect the real pinch point to be from a cash point of view.’
11. Plan for the worst
When talking to your bank, for support or in general updates, it’s best to look at the worst case scenario.
‘I think those who are in front of it and have done some detailed cash flow forecasts, perhaps looking at the next three months and then rolling into a six and 12-month forecast are very useful,’ Kendrick said. ‘The banks probably want you to look at a worst case scenario and then talk them through that.’
He added later in the interview: ‘It’s a brave person who thinks that when showrooms reopen that floods of customers will be coming through the door.
‘There’s cash burn when closed but there’s potentially cash burn when open.’
12. There will be opportunities for groups with cash
Although UHY Hacker Young said that the current situation has derailed transactions which are now on pause, Kendrick explained he has already had enquiries from businesses looking to purchase. This could be good for businesses desperate to sell but may devalue those even in a stronger position.
‘Ultimately everything has a value, I’ve had a number of people get in contact asking if I’ve heard of anyone looking to sell,’ he said.
‘For businesses with cash looking to move quickly, I think there will unfortunately be a lot of opportunity.’
Watch the full Car Dealer Live interview with UHY Hacker Young below
