Can Your Boss Afford to Pay You?

New research from the Bank of England suggests that company debt could destroy jobs

Corporate debt puts jobs at risk

After months of lockdown and furloughing the news that the number of job vacancies is at a 23 year high seemed to be great news for everyone. But a note of caution has arrived from the Bank of England, in the form of their latest Financial Stability Report, which points to the vulnerability of the SME sector as the economy emerges from COVID-19 restrictions.

Cashflow is the problem

The problem is not the lack of work, says the Bank in its Financial Stability Report that is compiled by the Bank’s Financial Policy Committee and published twice a year, but the debts that smaller businesses have been forced to compile because of Lockdown, which the Bank says gives them balance sheets that are weaker than needed to survive.

This means, that despite the return to work, people who work in smaller businesses could be at risk of redundancy.

Warnings from the Bank

The Bank of England says that:

  • Insolvencies will increase as government support unwinds
  • September will be the turning point as Winding up Petitions will be reinstated.
  • The end of VAT and Rent Deferrals could be a catalyst for business distress

It is not the lack of work that is the problem, but the absence of cash in the business, which will prevent the business from operating.

Bills that must be paid

Businesses may face substantial repayments as VAT and rent deferrals begin to lapse, costs could increase as broader government support such as the CJRS unwinds, and businesses that have borrowed under government support schemes will need to start making repayments on them. Additionally, the end of the temporary ban on winding up petitions in September 2021 is likely to lead to an increase in insolvencies over the next twelve months.”

Sectors ‘that are more affected by economic activity being curtailed’ find themselves in particular jeopardy, the report notes.

Bank staff analysis demonstrates that as of January 2021, 11.8% of SMEs in these sectors are already in arrears on their outstanding loans or have formally defaulted.

Warning signs for employees

Company Debt, a provider of business rescue and insolvency services explained to the signs every worker should look out for as indicators that their employer may be in trouble.

Try as they might to carry-on as normal when a company is in trouble managers cannot hide the extra pressure they are under.

Employees should look out for changes in behaviour that indicate that their manager is under stress.

This could be a feeling that things are less organised than they usually are. People who have worked in companies that have experienced financial problems reflect on how managers gave the impression that they were lurching from one crisis to another and constantly fighting fires.  

As a crisis develops managers often both, lose sight of their strategic vision and, control of their day-to-day cashflow.

The classic signs that employees need to look out for which indicate managers have lost control of their cashflow and the company may be facing an impending insolvency are

  • Employees not receiving their pay on time
  • Directors not paying themselves
  • Constantly hearing from customers that they have to chase the company for payment of invoices

Now you know

So, once you know that your employer is sailing in dangerous waters, what can or what should you as an employee do to safeguard your future.

You could simply wait it out. The situation may improve, and anyway if it doesn’t, you’ll get a redundancy payment, a nice lump sum. After all there are lots of jobs out there!

Companies with cashflow problems have problems paying their bills so it is unlikely that you will get anything more than your statutory entitlement and you may have to wait quite a while to get that.

Be proactive

Being proactive and taking control of your own future may actually be the better option

Continue to work for the best interests of your employer but make sure that you have a CV ready to send to prospective new employers.

Network – Contact people you may have lost touch with, just be friendly for now, but as most jobs are not advertised your best chances of getting another job will be through your network of contacts.

Think about alternatives to the work you usually do. During lockdown, many people found that as their usual work disappeared, they were able to explore other options, that essentially, they would not have investigated if it had not been for COVID.

Many of them decided not to return to their old careers.

Maybe you could try some career coaching?