Coronavirus – Practical Business Advice – Part IVApr. 8, 2020, 5:00am
We’ve all been through a lot in the last few weeks assessing events, reading guidance and listening to announcements to protect our businesses. So where are we in the context of the ‘Big Picture’ of business continuity? We shall consider this in 4 phases….
Phase I started when the initial indication of business slowdown was first realised around the week commencing 9 March 2020. Larger corporate organisations started to cancel their employee attendance at social events and business meetings and restricting travel. This then moved through to the current status where we are all now subject to ‘lockdown’, staff have been furloughed and businesses try to continue trading at 20% – 60% of normal levels, if they are lucky?
Phase II is probably where we are now, with the proverbial ‘dust’ settling on the new world order. Directors and business owners surveying the damage and making the best of what there is to continue, and hopefully kick starting the business again, when permitted to do so.
All of our conversations with clients to date focus on conserving cash, claiming government funding, preparing financial information and projections to apply to Banks for access to funds under CBILS. The aim of the CBILS applications being to facilitate resuming business, fund losses and trade out of this ‘recession’.
This phase we estimate will last through at least Q2 of 2020 (April, May and June) subject to the great ‘unkown’. Businesses need to survive, but in doing so will sustain losses which need funding. That funding will require repayment via future trading profits.
We believe that a 13 week cashflow model is a key tool to assess the cash ‘need’ through Q2. Please do feel free to e-mail us and we will issue a template that can be populated by yourselves or discussed with us. Whilst this is short term, it is an essential tool to convey to banks (talk to them now) showing them your business continuity plan and the management control you are exercising over the situation.
When year end Financial Statements, current management accounts (financial software reports will suffice) and 12 month trading projections are available, hold another conversation with the bank and make a formal application under CBILS. Make sure you apply for sufficient funding for the next 6, 12 even 24 months.
If ‘lockdown’ realistically is released in June/ July 2020, then restarting a business from a low level of trading with an equally low level of cashflow, needs careful consideration. Resuming trade requires funding for staff wages, together with both the debtor book and trade creditors (who themselves may be wary). There is a very real, yet obvious, danger that other businesses go bust and bad debts are incurred making an already difficult situation worse..
This is (hopefully) a period where business gets back to normal levels and even grows. With so much pent up demand, the economy could overheat from a ‘bounce’ where trading in Q3 and Q4 of 2020 exceeds normal levels. It is at this point – when the going seems good – that businesses go bust!
Businesses find they cannot cashflow the ‘bounce’ coupled with potentially sustaining earlier bad debts.
The key here is Planning and Preparation:
- Plan and robustly challenge business assumptions in financial projections and forecasts.
- Prepare for the significant cashflow requirements of a return to full trading.
Furthermore, it is crucial to remember that any accumulated debts and taxes deferred are not forgiven but will need to be paid. This will impinge upon cashflow into 2021. It would be a great shame for a business to survive the lockdown, only to be ‘knocked over’ as a result of deferred debts catching up with it.
As always we are here to help. Please call if there is anything we can assist with, or if you simply wish to talk!