Coronavirus (COVID-19): Advice for UK Business

Banks and building societies remain a safe place to keep your cash in the short term. For those with large cash deposits, consider where these are held and the amounts held due to the level of protection for deposits under the Financial Services Compensation Scheme being restricted to just £85,000 per individual, per financial institution. Please refer to our previous article for more details and guidance. 

We don’t believe you can successfully time markets but, obviously, stock markets are at much reduced levels from earlier in the year. If it makes sense for you to invest for the longer term then there is no reason to believe now isn’t an appropriate time to invest, provided the funds are suitability structured. If you’re concerned about committing your funds in one go, there is the alternative of phasing funds into the new investment over a number of months.

If you’re taking a regular income from your portfolio that isn’t being spent and is simply accumulating in your bank account (earning little or no interest), now might be the time to reconsider if that income is actually needed.

People tend to focus on the income they receive rather than the expenditure they make. We explore expenditure as part of our cashflow planning as it helps make informed financial decisions. With a reduced ability for discretionary spending you could consider:

• If your expenditure has gone down
• Whether you can use this as an opportunity to save more
• If you are making withdrawals from pensions or investments, whether you could reduce or stop these payments to preserve the funds you have.

For most investors (where a regular income is needed), the level of income they are drawing will be sustainable even after the recent falls we have seen.

We appreciate that in times of falling values this means that a greater percentage of the investment is being drawn; raising the prospect of accelerating the rate of any capital erosion.

To cover income withdrawals, portfolios generally hold a proportion of the fund in cash which avoids the necessity of having to sell equity investments in the short term. If the downturn goes on for some time it’s likely that the cash held in portfolios will need to be topped up. Rather than being forced into selling equities when markets are low, we can disinvest from the defensive assets within the portfolio which have broadly maintained their value.

We advocate reviewing your existing financial plans to ensure they remain suitable in helping you towards your financial goals now and in the future.

This approach is probably more relevant now than ever before, where a clear investment strategy and the ongoing management of costs can have a significant impact on your investments.

Sometimes people are put off making changes when sudden falls in value happen. If it’s in your interest to make a change we would not delay this because of a short-term reduction in the value of the plan being cashed-in or transferred because:

• If funds are reinvested – which is very often the case – then any ‘bounce’ or future recovery should still be captured
• Whatever the reasons for the change – lower costs, more flexibility, more suitable underlying investments etc – those are still going to be valid regardless of the value of the plan.

Cashflow planning plays an important part in delivering the peace of mind many people are looking for when considering their financial well-being.

A cashflow analysis will consider your available assets and income / expenditure both now and into the future to paint a picture of what your financial future might look like. 

If there’s a danger of a financial shortfall in the future the cash flow will identify this enabling you to make the necessary changes now to secure your financial well-being.

Conversely, a cashflow analysis may identify that you have ‘more than enough’ enabling you to enjoy life more now or assist your children / chosen charities etc.

It’s too early to make any great predictions given the unknown duration and impact on the economy and businesses generally of COVID -19. However, regularly revisiting the various cashflow  scenarios to ascertain when pinch points may occur now or in the future can allow you to take steps now to change or delay plans should it prove necessary.

We advocate holding sufficient available cash to cope in an emergency, be it a one-off cost such as your car or boiler needing replacing, or to provide ‘income’ in a worst case scenario.

Now may be an appropriate time to switch off the income you may be drawing from pension drawdown plans or investments, and instead draw down from cash reserves. If, or when, a recovery happens, these reserves can be topped up again.

Many businesses will be looking to defer rental payments at the current time to help business cashflow. Where the business is your own and the premises are owned by your own SIPP or SSAS, special consideration needs to be taken into account. Please refer to our previous guidance from our expert pension team.