Cash is King
Is it just me or does anyone else feel like we’re in limbo at the moment? We are slowly adjusting to a post (high levels of..) COVID world where the shackles of lockdown are gradually being released (unless you live in Leicestershire).
It’s an ever changing situation; only yesterday I completed a consumer survey where I stated that I didn’t intend to go comparison goods shopping anytime soon. Then today I am planning on taking my kids up to Cheshire Oaks for the afternoon. It was originally going to be a trip to Chester city centre but a few shops that my kids wish to go to are temporarily closed. The same shop is open out of town, presumably an indication that some brands are staggering their opening strategy depending on in town/out of town stores. It could be a space determinant or it could be to see how traditional city centres, with a greater reliance on public transport as a means for people to get in and out play out in terms of (footfall) recovery.
The chart below is a recent snapshot from Red Tiger Talent’s accounting system. It makes for stark viewing and is likely to be reflective of other consumer led and consulting businesses. The blue bars are cash in, and the grey bars are cash out. January 2020 showed a spike in our costs where the business paid out Dividends to the directors, a move typical of smaller limited companies where monthly, quarterly or six monthly payments are seen as a more flexible and tax efficient means with which to reward business profitability. Late February was looking pretty good: we had cash coming in from placements made over the previous 3 months and we were actively working on a healthy number of recruitment roles. Events in early March reminded me of the voting in Paddy McGuiness’s dating show Take Me Out – we had a number of lights on (assignments) and in the space of a few days all of our lights had gone out with recruitment being put on hold – the only thing missing was the comedy noise of all our lights being switched off at once!
On the cost side, we at Red Tiger run a very tight ship, with fairly minimal overheads and no extra costs associated with expensive city centre offices or headcount. In fact, COVID-19 forced us to temporarily pause our search for an Apprentice (more on that later).
Our second biggest business expense is usually travel and entertainment which dropped right down since mid-March as we, like a lot of people, have been fulfilling all of our business obligations from home. There must be so many larger businesses with significant office and headcount costs which could not be immediately switched off when lockdown happened. These businesses have been carrying these costs and eating into their cash reserves while income is still waiting to recover. In all my businesses we have worked on the basis of a ‘going bust’ date that is subject to various scenarios on income and costs. This was one of the first exercises we did post COVID-19 and it was useful as it gave us comfort that as a direct result of retaining some of our profits within the business we would have enough (if we controlled our costs) to see us through to beyond a pessimistic economic recovery in early 2021.
The peak of cash in May 2020 was not some unexpected recruitment income, but a cash injection courtesy of the Coronavirus Business Interruption Loan Scheme (CBILS). We decided to get this loan just in case and will start to pay back in 12 months’ time with the hope that we will never need to use it. That said, it has given us the confidence to once again push ahead with finding an apprentice, the thinking being that we should have a good pick of quality candidates (with less competition from other hirers) and if the successful candidate joins in September we expect them to hit the ground running in the new year. I would just urge as many businesses as possible to follow our lead and try to be bullish in switching on your recruitment – you could steal a march on your competitors and there are going to be plenty of quality candidates available. It is certainly turning from a sellers’ market (candidate) to a buyer’s market (company) in recruitment.
July 2020 is looking a little better for Red Tiger Talent, and whilst it certainly isn’t back to former glories, we are due some extra income from successful placements in lockdown, as well as payment of outstanding invoices on COVID-19 extended credit terms. We will not be getting overly excited though as we are used to the recruitment lag. A lot of the work is done in the run up to placement, then a delay of 1-3 months when notice periods are typically served,. We then receive our fees 30 days (if we are lucky) after the successful candidate starts, which means we have a good view on (lack of) recruitment income 2-3 months out. Where we stand today we know that we are not currently in line to bill any clients for placements in July or August.
I am sure that this is a similar situation to a lot of other businesses. My call to action is for everyone to get out and spend. Spend like there is another lockdown imminent around the corner. Support all local businesses because we won’t appreciate them when they are gone! I feel we all have a collective responsibility to get the economy moving again, and I appreciate that the natural inclination where there is an extended period of uncertainty, redundancy and global recession on the horizon is to reign in our spending behaviour.
The quicker the recovery, the quicker we can get back to the ‘new normal’.
Seize the moment and savour our ‘freedom’ for as long as it lasts. But please remember to obey the
2 metre 1 metre rule and stay alert.