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Tough times for technology businesses

By Ensors Team
21st May 2020

Like many sectors in the UK, technology has been hit hard by the COVID-19 pandemic.

Pre-revenue technology businesses are now worrying even more about timelines to monetisation, and/or when their next round of funding or grant claim will appear in their bank account. We are seeing that pre-arranged and agreed funding rounds are largely still going through, however future rounds will clearly be more challenging. In addition, applications continue to be made for Innovate UK grants, as well as EU grants. 

Coupled with this, the Banks CYBIL and Bounce Back loans are providing much needed liquidity into the market. Clients are also seeking to defer VAT, PAYE/NIC and Corporation tax monies with agreement from HMRC. The government job retention scheme is also being considered where appropriate. 

All this means that there are mechanisms in place to assist with cash flow.

Interestingly, the last crisis saw a whole new group of entrepreneurs emerge out of the recession, and clearly these individuals now have a few more years under their belts. They are managing the crisis by reverting to the age-old practice of managing their business by their cheque book (except nowadays it will be credit card/BACS payment run etc.).  However, it must be asked, did they ever stop doing this in the first place!? 

Working capital is crucial to all businesses, no more so than now.  “Cash is King” is clearly a term that is making a comeback! Suppliers and staff alike still need paying, and money must keep circulating. The message is clearly planning for when and how much accordingly.

We are also seeing non-discretionary spend being deferred. This may be an exhibition, as it physically cannot take place now, or consideration of a large expense such as moving premises. In the latter case, clients are putting these decisions on hold for the time being. In many cases the rationale to move still stacks up, but only when a bit more certainty over the sector/economy is available and cash flow in the medium-term permits.

It is not business as usual, but business continues in a different form. I still believe those good businesses that entered this period will still be good at the end of it. They will have adapted and, in many cases changed their business model, but will still be alive and viable moving forward.