Region heads for cash crunch as effects of crisis start to be felt
PUBLISHED: 01:00 29 June 2020 | UPDATED: 08:28 29 June 2020
A cash flow crisis could be brewing in East Anglia as companies start to feel the pressure from the coronavirus crisis.
Accountants BDO said the region’s cash generation was “worryingly low” heading into a cash crunch triggered by the pandemic.
While many of the region’s businesses have fared well since the start of the pandemic, some are now starting to see greater pressure on cash, it said.
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Since the start of the pandemic, businesses’ cash flow – or the cash cushion available after bills are paid – has been buoyed by furlough, the Coronavirus Business Interruption Loan scheme and VAT deferral offered by the government.
But the effects of lockdown on sales and a rise in unpaid bills is started to catch up on them and cash flow is drying up, it warned.
A tapering down of the furlough scheme, over-trading coming out of lockdown, redundancies and the end of VAT deferral are set to pile on the pressure, it added.
These will add to existing pressure on farm produce prices - one of the region’s key sectors.
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BDO’s analysis showed East Anglian businesses converted just 2.1% of the value of their sales into free cash flow on average last year, and the average has remained stubbornly low.
But the diversity of the region’s economy should insulate it from the crisis more than some other parts of the UK.
BDO partner Sarah Elms said the impact of pandemic had triggered a cash flow crisis for firms across the UK but so far East Anglia had been quite robust.
“However we are now starting to see signs of this changing and anticipate this pressure will increase in the coming months,” she said.
“Our region’s balanced economy does give us confidence that we can bounce back quickly, however. Both Cambridge’s hi-tech cluster and the agricultural industry in Norfolk and Suffolk are well positioned to rebound when lockdown ends.
“Other regions that are more reliant on industries like manufacturing have been much harder-hit and will likely take longer to recover than East Anglia.
“That free cash generation was relatively low for so many businesses in the run-up to the outbreak is a worrying sign. To survive this crisis you need good cash flow, improving that, in these conditions, is harder but achievable.”
A business that converts 5% of the value of its sales to free cash flow is generally seen as very healthy.
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