4 Mins
The Coronavirus (COVID-19) pandemic has had an unprecedented impact on the global economy.
There are four key areas that you must focus on in the short term:
- Short-term cashflow
- Stakeholder management
- Medium-term funding
- Restructuring & director’s responsibilities
- Prepare a short term daily or weekly cashflow to clearly establish your current working capital position and to identify what levers you can pull to remain within your facilities.
- Manage all stakeholders to the business. It is critical that you gain their support and communication is key.
- Once you have comfort in your short-term position, consider whether you require any medium-term funding to support your business.
- Be aware of and think carefully about your director’s responsibilities and consider the implications on creditors of any decisions you make.
Short-term cashflow
It is critical that you fully appreciate and understand your current cash position and have a clear picture of your short-term funding requirement. You should maintain a simple cashflow that will quickly identify your immediate needs and can be easily flexed based on different scenarios and assumptions. To assist you we have two 13-week rolling cashflow models below which we recommend as a tool to monitor your weekly position, which allows you to clearly see the impact of cash management measures.
- 13-week cashflow management tool (including invoice finance)
- 13-week cashflow management tool (excluding invoice finance)
These cash management measures could include a combination of the following:
- Requesting a temporary increase in funding facilities from your bank
- Release of equity from part or unencumbered assets from your HP provider
- Agreeing extended payment terms from suppliers including your landlord
- Renegotiate customer contracts and insist on payment on delivery
- Requesting a time to pay arrangement with HMRC
- Consider staffing levels
- Consideration of deferral of payments to shareholders (dividends), directors and senior staff (bonuses)
- Potentially deferring any other current one-off project-related costs
By maintaining this model and demonstrating that you are in control of your short-term cash position, you will be able to approach your stakeholders for support with confidence.
Managing stakeholders
All businesses have a range of stakeholders and other organisations that need to be managed during this difficult period. With the right approach, they could, in fact, hold part of the solution to your short-term issues. These could include your bank, customers, suppliers, HMRC, asset finance providers, shareholders and importantly your people. It is extremely important to communicate with them all to ensure that they completely understand your position. Getting them all on the same page is critical but will be challenging given that they may have competing interests.
Medium-term funding
The government has introduced the Recovery Loan Scheme. The Recovery Loan Scheme (RLS) is to help businesses of any size access loans and other kinds of finance so they can recover after the pandemic and transition period.
Up to £10 million is available per business. The actual amount offered and the terms are at the discretion of participating lenders. The government guarantees 80% of the finance to the lender. This scheme is open until 31 December 2021. The information that you will require to provide is likely to be the typical business plan, financial projections and historic trading results but importantly a short-term plan to see your way through the crisis. Hence identifying your short-term cash requirement and reaching an agreement with all stakeholders in advance of approaching your bank is critical.
We would stress that the loan is a commercial loan and will require to be repaid. You will, therefore, need to satisfy yourself in the first instance, and then the commercial lender, that you have a viable business proposition. We recommend that you undertake some scenario planning to demonstrate that you can service this additional debt under various scenarios.
Restructuring and director’s responsibilities
Inevitably difficult decisions will require to be made and this may involve redundancies and an element of restructuring. If you consider that your business cannot meet its debts as they fall due, as directors you need to be very careful when making decisions. Your responsibilities switch from being to your shareholders to your creditors and it is important that you do not put your creditors in a worse position through your actions. You must, therefore, be aware of the impact that your decisions will have on individual creditors and take appropriate advice if in doubt.
Get in touch
If you have any queries in relation to the above issues and would like a confidential discussion with our team of specialists please contact:
Robin Denissen-McIntosh
Rod Mathers
