To furlough or not…

I’ve had a few conversations this week about whether a small business (limited company) should furlough its sole director and/ or employees.

For most businesses, it’s a no-brainer. No sales means no work. Furloughing employees is a given!

However for others, they have a dilemma. They have some cash reserves and are used to the occasional quiet spells. They use the downtime to either rest from the busyness, catch up admin, and/or contemplate some ideas they have as to how they could develop their business. But this is not your average quiet spell…

For example, one business, which has no employees (only a sole director) has used the lack of sales as an opportunity to rest, but the director has done no business development, thus they have effectively been furloughed. The director had a few ideas whilst resting and is now looking into whether those ideas will help bring in some revenue. This business can claim for the director being furloughed, so long as s/he has been out of action for 3 weeks consecutively, but not once the director actively starts working on business development.

Another business who has a handful of employees and one sole director, has been using the last few weeks to catch up on admin, and in particularly dealing with all their customer cancellations. They’ve been busy doing work, albeit not generating sales, so they cannot claim furlough the last 3-4 weeks, although they can consider it going forward now they’ve caught up with all their admin.

However, similar to the previous example, this director, has also had a few ideas about s/he could develop the business but they also have dilemma. They’re pretty certain sales are unlikely to pick up until well after the social distancing/ lock-down lifts so what do they do?!

If they start working on business development, they cannot claim furlough but they’re pretty doubtful that the business development will bear any fruits until several months after lock-down has been lifted. Thus, do they start on it now, or do they wait, claim furlough and then pick up all their ideas once everything returns to some sort of normality (and when HMRC stops allowing furlough claims).

The obvious choice would be to claim furlough to help their cashflow, but…

If they could get working on something that would develop their business now, rather than waiting even longer and possibly missing out on an opportunity then just maybe they could help their business.

Unfortunately, there is no right answer. Each business must do what it feels is right, but one thing I would say is that a business always faces challenges and at it’s very core, it must always look for opportunities or it has given up. However, that said, what we are facing at the moment, is bigger than any challenge most small businesses have ever faced!

Whatever direction a business chooses, it must be happy with it’s choice. The only advice in response to that is:

Limit your regrets!

To help with your decision-making, check out a blog I wrote a few years ago: https://www.hmcoaching.co.uk/how-to-make-a-quick-decision

P.s. I hear you ask, what harm could it do if you still did business development and claimed furlough? In short, whilst a small business is very different from a large business with hundreds of employees, HMRC have said they have the right to conduct an audit on every claim that is made. What that entails, no-one knows yet but it would certainly be easy to see if they had been active drumming up business on social media for example.

NB: For more on the Coronavirus Job Retention Scheme, visit: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

As always, take care x

Helen Monaghan

Chartered Management Accountant and Author of 12 Steps to Improve Your Cashflow, Successful Business Minds, and The Magical Mix of Money & Tax.

© HM Finance Coaching Ltd