Breaking even

Source: Other | | 05/08/2020

There are businesses that have benefitted from the current COVID disruption. Particularly, those that can deliver goods and services online.

There are far more that have not benefitted.

Before COVID-19 reared its disruptive head businesses were exhorted to make profits. This was the way most firms created surplus cash-flow and value in their businesses.

Since the initial, national lock-down – March 2020 – profitability has been the experience of the few rather than the many.

Government grants, and in particular the furlough scheme, have enabled businesses to mothball activity and keep some semblance of financial credibility. But for a significant number of firms, making profits has been replaced by strategies to minimise losses.

Government backed loan schemes with favourable interest and repayment terms have provided liquidity, but at some future date, borrowers will need to repay loans and absorb interest charges.

Presently, businesses will need to manage a sustained period of loss making to ensure they do not drift into insolvency. Realistically, they will need to plan to at least breakeven – cover their costs – in order to halt any decline in net assets.

Breakeven turnover – the level at which costs are covered – is a fairly easy figure to calculate, but unfortunately, this indicator will need to be exceeded if and when you have to make repayment of loans or create additional working capital.

Again, these options need to be considered in some detail. Planning is key. If you have concerns about your longer term ability to breakeven please call, we can help you crunch the numbers and consider your options.



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