Keeping your business alive through the Coronavirus lockdown

Business owners are scrambling. Demand has dropped for many industries and the battlefield is still too new to know what the landscape will look like over the coming months. Many businesses will go under, but the objective through this is to make sure yours survives. Then when things return to normal (and they will), you will be able to take advantage of the recovery.

I have set out some tips/steps below in how you can increase your chances of being one of the survivors:

1. Don’t panic! Easier said than done, but if you panic you tend to make emotional, irrational decisions. It is important to think your way through your situation objectively and make proper plans based on facts.
2. The key issue is liquidity. Do you have enough cash flow to manage through the crisis period. The amount of assets you have doesn’t matter. You need the cash to pay employees and creditors. So, prepare a cash flow analysis showing the cash you have available and what you need to pay and what you can defer. Look at each element carefully:
   1. Cash availability – both bank account cash plus access to overdrafts and funding (check with the third party to make sure this is still available to you)
   2. What payments do I need to make and what can I defer / re-negotiate? How can I best save money on payroll while retaining and supporting my key employees?
      1. Salaries and wages
      2. Suppliers
      3. Tax
   3. What are my fixed vs variable costs? Don’t assume that traditional fixed costs are fixed. Investigate with landlords, banks, suppliers to make a plan. They would prefer to have some clarity on payment and have you survive rather than have you go bust and receive nothing;
      1. What are my payroll options? There is a lot covered in this newsletter around various schemes to help employers with government support, but the main options are (each has pros and cons and processes to be followed which we don’t go into here):
         1. Request employees to take annual leave until they use up their leave balance and then they can use unpaid leave; or
         2. Negotiate for employees to take short time; or
         3. Negotiate an across the board salary cut; or
         4. Formally retrench employees or groups of employees;
      2. Review your receivables. Not everyone will pay you. Divide the receivables in low, medium and high risk of non payment.
         1. 1. 1. Consider what grants and support may be available to you. Remember these will be constrained by timing and amount so don’t bank on getting these in time to help you.
               2. Assess what actions you can take to improve the cash flow position in all of the elements above. Understand what needs to work for you to survive. If there is a shortfall then either consider more drastic steps or recognise you will need additional funding.

             

3. Review your contracts with customers and suppliers for force majeure clauses. This will impact whether you may be able to immediately terminate a supplier contract or on the other hand may be faced with a customer cancelling on you (this shouldn’t impact payment for work already done)
4. Continue to iterate the above and don’t get distracted by other issues.
   It is important to remember “Plan for the worst and hope for the best.” The lockdown may continue past the middle of April and you need to be ready to adapt to deal with this.