30th March 2020

How resilient is your business?

Well, get some good learning under your belt from reliable sources about the current financial climate/where the economy is heading, and then read a positive view point about overcoming challenges in the “right” way.

We have selected two sources for you.

Please read our two previous posts:

  1. ACCA’s chief economist, Michael Taylor, presents the latest of ACCA’s economic insights into the economic consequences of the Covid-19 epidemic; and
  2. ACCA’s article ‘Showing humanity in times of uncertainty- successful leadership during a crisis’ by Dr Rob Yeung

Now, your business! How to plan to be resilient:

  1. What are the vulnerabilities in your own business model? How will a downturn in consumer demand affect your business and hit your cash flow? You need to manage cashflow, funding, reserves and liquidity.
  2. Identify weak spots in your supply chain. Decide whether you want to be letting your suppliers go. Remember, wherever possible, this is not a time to kick downwards. The goal is recovery, and you want to be up and running quickly, and have viable business at the end of it.
  3. An ACCA article suggests producing cashflow statements for the next three, four months, twelve months and modelling them against a 25%, 50% and 75% drop in demand. Run projections not just on your cashflow but also your balance sheet in different scenarios. Depending on the outcome of this modelling, think about where you can cut costs now.
  4. Work out what you are owed and what you owe, look through your regular outgoings from bank statements to help with this if you aren’t using software. Try and have a handle on when money is going to flow back in, as well as looking at where savings can be made.
  5. Produce weekly cashflow statements for the next three to four months, modelling them against varying drops in demand.
  6. Your people- look after them first. Plan/implement flexible working (now here). Make sure they are safe (not everyone is at home), and you have reviewed and updated your own policies, to continue to keep them safe. Have in place a ‘people policy’, establishing what your response will be when the first employee gets the virus. Seek advice on this from the relevant health and government authorities. You should also plan for how you will bring staff back into work, when this is over. Have a detailed communications plan for all stages of the emergency, one that will engage and update employees regularly. Take employment law advice where necessary.

Steps to be taken once you have a plan:

  1. Consider sources of finance as late payments become a growing issue- self finance or speak to your current lender.
  2. Check what support your government is offering – see our guide here.
  3. Plan staffing/resourcing. Take employment law advice where necessary.
  4. Look for alternative ways to deliver services and/or products:
    • Can your business collaborate or diversify?:
    • Is there any way you can do joint work/cross referrals with other local businesses?
    • Everyone is looking at how to use the web to diversify their offerings – can you offer online courses linked to your business? For example, if your normal business is selling food items, could you provide online cookery lessons (you could also sell a box of ingredients for the lesson). Similarly, a fitness instructor could consider online gym classes etc.
    • A lot of people are going to have more time to learn and train, can you provide some online guides to customers? You might not be able to charge for an initial outreach, but you could ask people to pay what they can towards a tutorial, the hope being that in the future you will be remembered.
    • Can you offer a package to customers, perhaps a package with different tiers of support/supply? A subscription where once a fortnight/month, customers can receive a package of food/products. This may provide an amount of regular income.
    • Easter is coming up, and people not going to be out shopping for presents on the high street – could you target this?
  5. Ensure you have a business continuity plan in place and update it regularly.
  6. Encourage regular e-meetings to stay in touch with suppliers, customers and employees.
  7. Ensure you offer both practical and emotional support to your staff and communicate regularly to offer this reassurance.
  8. Speak to your customers and suppliers to potentially arrange payment plans in line with safe projections. Do remember everyone is likely to be in the same boat here.
  9. Speak to your business interruption insurers. Insurance policies differ significantly, so businesses are encouraged to check the terms and conditions of their specific policy and contact their providers. Most businesses are unlikely to be covered, as standard business interruption insurance policies are dependent on damage to property and will exclude pandemics, but worth checking.
  10. Consider deferring your VAT payments (see our previous article here, direct debits to HMRC need to be cancelled by 31st March 2020).
  11. Look for any unnecessary costs. Are you paying for anything you don’t need or overpaying – extra computers on your IT management contract/old phones/defunct software licences/office waste service contracts. Are there any costs you can reduce? Utilities/ service contracts/software/ computer applications. Review your direct debits and standing orders and remove any that are not needed.
  12. If your offices/business premises are unoccupied/on lower occupancy. Turn the heating down or off. Usually Insurers ask that you advise them if your office is likely to remain unoccupied for more than 30 consecutive days. Insurers would recommend that you shut off the water supply to the premises and ensure that any measures to prevent thefts are taken.  We would suggest that you notify your insurers of any office closures as soon as possible.
  13. Check if your supplier contracts have gone beyond their fixed term and are rolling over- can you move to a new fixed contract on a lower cost?
  14. If you rent your business premises, make sure you are on the business rates bill, and that the local authority have the correct contact details for you. The letters have hopefully gone out now but check online with your relevant authority.
  15. Keep communication open with your debtors. Offer regular payment plans and importantly stop work for those customers that aren’t keeping up with payments/clearing invoices.
  16. Speak to HMRC on their dedicated helpline. Details found here.
  17. Strictly control procurement and payment requests and actively communicate with suppliers and explore possibility of deferring payments as time goes on, and finances become clearer;
  18. Reduce unnecessary travel i.e (not that this is a big wastage at the moment, but to those still moving about) call ahead to check suppliers are open/clients want you/need there.
  19. Keep an eye on finance options, and plan repayment of deferred taxes and short term/medium/long term borrowings. Take legal advice where necessary.
  20. We can’t really stress the point enough- planning repayment of any debt (including your unpaid taxes) is crucial to your long term success and the viability of your business.

How resilient are your personal finances?

The health of the business has a direct impact on your personal finances. That goes almost without saying, but staying indoors, and not leaving the house, is going to have an immediate impact on your drawing requirements as well. For the better we hope… Disney+ is a lot cheaper than childcare! So again, plan what costs/drawings are essential.

What steps can you take to make your personal position stronger?

  1. If you have a mortgage speak to your lender about a possible mortgage holiday. It is a formal process, and you must never stop payments without their consent. You must also understand the impact on your credit rating. We do not advise you do anything that will adversely affect your credit rating, and as such, it is imperative you understand your legal rights before agreeing to any amendments to credit terms.
  2. If you rent a property, speak to your landlord about a possible rent holiday. Some buy to let landlords are being allowed mortgage holidays, and as such, should be passing this on to tenants. If they are not, the Land Registry official copy entries will reveal your Landlord’s lender. If you are aware that your landlord has sought a holiday but is not passing it on, you may want to write to the lender registered against your landlord’s title.
  3. We are aware that some councils are open to discussing council tax payment holidays or arrange payments to them over 12 months and not 10. Water companies are also doing similar things. It may be worth picking up the phone to understand your options. We do not advise you do anything that will adversely affect your credit rating, and as such, it is imperative you understand your legal rights before agreeing to any amendments to credit terms.
  4. We are aware that some credit card lenders are waiving fees for missed payments, offering payment holidays or emergency credit limit increases, it may be worth picking up the phone to understand your options. We do not advise you do anything that will adversely affect your credit rating, and as such, it is imperative you understand your legal rights before agreeing to any amendments to credit terms.
  5. If you have savings in fixed rate products some of these are allowing penalty free access to these savings.
  6. Clarify childcare fees, contract terms and seek reductions or cancel.
  7. Do you have any items on finance agreements? If so, can you speak to the lenders about reducing repayments or repayment holidays? We do not advise you do anything that will adversely affect your credit rating, and as such, it is imperative you understand your legal rights before agreeing to any amendments to credit terms.
  8. Deferral of your self-assessment July payment on account is automatically available… but remember that your January balance will be much higher as a result!
  9. Look to cut luxuries such as gym costs/music/TV channels.
  10. If you have more than one car can you get by with just one and stop the tax and insurance (please do be aware on the rules around this), MOT’s due on cars from 30 March 2020 have been granted a 6 month extension.
  11. We have heard of people with car financing agreements and TV/entertainment subscriptions who have reduced the repayments significantly. We do not advise you do anything that will adversely affect your credit rating, and as such, it is imperative you understand your legal rights before agreeing to any amendments to credit terms.
  12. Speak to your financial adviser.
  13. If you had holidays/flights booked, can you claim on insurance?

Now re-assess your entire business and drawing projections with any adjustments from above – where are the pinch points now? Can you self-finance, do you need to speak to your bank, or do you need to consider government assistance measures:-

  1. Universal Credit
  2. Employment and support allowance
  3. Job Retention Scheme
  4. Coronavirus Business Interruption Loan Scheme (CBILS)
  5. The Self-employed Income Support Scheme

See https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19.