Recovery strategies for SME's dealing with financial distress caused by Coronavirus

A few weeks back my former MBA mentor, Professor Meziane Lasfer of Cass Business School, shared a framework detailing recovery strategies available to companies contending with financial distress.

Professor Lasfer presents a simple matrix outlines cash generating and cash conserving strategies that can be deployed to protect cash position. There are both advantages and disadvantages with each, but Professor Lasfer hopes that this can "constitute a first stage of discussion and resolution of financial distress". Within this article I look to expand on this framework based on my experience to help SME's looking to navigate these uncertain times.

In reviewing this framework, I've been considering other avenues that UK SME's could take to alleviate financial distress. One opportunity for SME's is R&D Tax Credits, allowing those companies that seek to research or develop an advance in their field (even if unsuccessful) with tax credits and potentially cash refunds. Whilst companies should not rely on this for generating cash, it is a right that many SME's simply do not exercise.

With the start of April representing the start for many SME's new tax year, there is an opportunity to close your accounts ASAP to allow you to submit your R&D Tax Report. This also offers the added benefit of understanding what your likely tax liability will be many months in advance.

Any company seeing this relief must prepare a R&D report, outlining nominated projects along with associated costs. Whilst it is imperative to get support from an accountant, it's really important that an operational leader within the business prepares the report initially. When preparing this report it is important to define your R&D activity as "projects" relating to research or develop a new process, product or service or improve on an existing one; clearly explaining:

• looked for an advance in science and technology
• had to overcome uncertainty
• tried to overcome this uncertainty
• could not be easily worked out by a professional in the field

Having compiled many of these reports in the past, I've outlined below a structure for preparing and R&D report:

1. Introduction - Overview of what the document describes, demonstrating SME / R&D eligibility, outlining financial summary.
2. Company Background - Overview of company background, vision, mission etc. Key employees / Directors and their supporting contribution to R&D.
3. Project(s) Overview - Overview of what the projects are conducted by the company, it might be the case that you are submitting multiple projects within the same report.
4. Project Detail - Providing clarity as to why this project meets the criteria. Providing, introduction and strategic rationale, product/market fit and validation, commercial objectives, technological advances sought, detailing uncertainties, R&D activities undertaken, patents applied (if relevant), project outcomes and finally timings.
5. Confirmation of SME Status - here you will also need to state whether you have also had any state aid historically and to what amount.
6. Financials - outlining costs with contributions to your R&D projects as well as clear descriptions as to cost areas applied and their relevance to R&D.
7. Summary - basic summary table outlining costs and suggested claim.

As a final point, it is important that you consider time carefully e.g. will you be submitting this once or annually.

If you are considering this there are a number of companies that will write these for you - they typically charge a writing fee and a % of any cash refund. Personally, with the information presented in this post, have time to prepare a draft, working with your accountant you should be well placed to push this forward without needing to pay a third party.

I'm happy to talk with any company looking to do this, having done this successfully for multiple companies. If you'd like to connect, please don't hesitate to reach out, happy to help.