Coronavirus – Practical Measures You Should be Taking

As we adjust to the changes faced as a result of the coronavirus situation and the ‘new normal’ we have outlined some key considerations you should take as you and your business adapt.

The key is to not to panic, get appropriate advice where needed and take as many steps as possible to mitigate any impact on you and your business. AAB is here to support you and below we have outlined some practical measures that should assist all businesses through this unprecedented time.

Office and Building Closure

In the first instance, if your offices and buildings are closed, you should remember to inform your insurers that the buildings will be unoccupied for a period of time.

Cashflow/Forecasting

In times like this, cash is king, and there is some advice on how to boost your income and reduce your expenditure later in this blog. Your first port of call is to have a firm grip on your cashflow and where possible, use accurate forecasts and projections so that you have full visibility of the impact of the crisis on your business.

• Micromanage – Every penny counts so drill down into your cashflow to a daily level. Make sure you know what your expected income and cash burn for each day is. This will prevent any unexpected liabilities from cropping up further down the line.
• Short-term scenario plan – Forecast for every eventuality you can think of (from complete shutdown to all employees working from home) and build in the appropriate government support measures where applicable.
• Resumption plan – Although we do not know how long this situation will last, try and forecast/plan for what you want the business to look like upon resumption. Hopefully any damage incurred will be minimal and having a resumption plan will allow you to hit the ground running when things begin to normalise.

Income/funding

Most businesses will see a change in demand for their services, temporarily restricting income streams.  It is important, therefore, to maximise what revenue can be generated and get cash in as quickly and as regularly as possible.

• WIP – Review your Work in Progress and see what can be billed now and in the short-term. What is required to complete any on-going projects/orders? Is there any reason why you cannot fulfil them? Communicate with your customers and keep them updated on the status of any orders.  Double check with your customers that they a) still want your service and b) are in a position to pay for it.
• Debts – Proactively manage your debtor book in order to maximise recoveries. Remember that your clients are likely to be in the same boat, so communication and compromise are key. Speak to your clients and see when and what they can pay.  If your cashflow allows it, then be open to offering discounts to get cash in now or longer payment terms with monthly instalments. Whilst you want to get as much cash in as possible, it is better to get some payment than risk getting nothing at all.
• Innovation – Necessity is the mother of invention. Consider what you can do to adapt your business in order to generate income or prepare for the future. Can you optimise your online/delivery services? Are there opportunities to hire out a function of your business to another business which is needing resources? (e.g. drivers to assist with supermarket deliveries) Can any downtime be used to develop/improve your products so you are ready to go when matters start returning to normal?
• Shareholder support – Speak to your shareholders to see if they are in a position to invest equity in the business or convertible debt, if appropriate.

Outgoings

As cash will be tight, you also need to minimise your outgoings:

• Expenditure/creditors – review your outgoings and see how much cash your business uses on an ongoing basis. Sort your liabilities/recurring expenses by amount, frequency and whether they are critical for on-going trade.  Where possible stop any expenditure that is not vital. Contact your higher & longer-term creditors about your current situation and see if a mutually satisfactory payment plan can be agreed.
• Bank/lenders – Speak to your bank/lenders/hire purchase creditors and see if they are willing give you a payment holiday/reduction for the next few months.
• Landlords – Liaise with your landlord and see if you can have a payment holiday or split the next quarter up over a longer period (i.e. monthly payments rather than all at once). If you have arrears, then incorporate these into your cashflow and offer to pay something if you can. If you are unsure about breaching the terms of your lease then always seek independent legal advice.
• HMRC – VAT has been deferred for this period until end of June and you will have until the end of the 20-21 financial year to make up any outstanding balances. You can also speak with your tax advisor to seek a time to pay for any other tax liabilities you may have. Further details on this can be found here.
• Deferrals/time to pay – Remember that any deferred or time to pay agreements still need to be paid. Make sure you include these in your future cashflows and forecasts so you do not encounter any nasty surprises in a few months’ time.
• Communication is key – The sooner you engage, the sooner a solution can be found.

Employees

A business cannot function without its employees and the government has implemented the Coronavirus Job Retention scheme to assist companies to retain their workforce during the next few months. Through the scheme, the government pay 80% of monthly wages up to £2,500 of all furloughed employees (those to be retained but not able to work).

• Legal advice – Before taking any action with your employees always seek independent legal advice. Employment law is complex and it is better to double check than face claims further down the line. ACAS is a good source for further information
• Reduced/changed hours – The Job Retention Scheme only applies to furloughed employees that are not working at all. Based on current information available, it cannot be used to top up wages of those working reduced hours.
• Working from home – If your employees have the capacity to work from home and your cashflow allows you to pay them then make sure you test IT systems to ensure they can still do productive work.
• Sick pay – Up to 2 weeks Statutory Sick Pay (SSP) can be reclaimed from the government per employee.
• Communication – Above all being as open and honest as you can be with your employees will help them through what is a very worrying period. Let them know what financial support measures are available to them (e.g. mortgage holidays) and schedule regular catch ups with staff to stop them feeling isolated and keep them feeling part of the team. There a lot of resources available online to help you get the best out of remote working.

Supply Chain

It is important to review your supply chain both for immediate trading and as part of your resumption plan. If you cannot get the goods you require to provide your services then this will have an additional impact on your cashflow.

• Orders already placed – Do you need this stock immediately? Speak to your suppliers and double check that they can still fulfil your order and within the timescales required. If you do not need the items at this stage, then see if your order can be delayed.  Remember that they are likely to be suffering difficulties as well, so where possible try to not cancel orders unless absolutely necessary as they could be vital for your supplier’s survival.
• International stock – If you import a lot of stock or equipment then this is likely to be severely disrupted by the various lockdowns across the globe. Not only will production have halted but there will also be a knock-on effect on shipping and customs processing. Communicate early with your supplier and see what the latest estimated delivery time is. Identify alternate, more local, suppliers whilst your supply line returns to normal.
• New stock required – Double check that your usual supplier will be able to meet your requirement and when before placing any orders.

Directors’ duties

Whilst they may seem unimportant in the current climate, you still need to be aware of your directors’ duties and obligations. If as a result of your cashflow projections/forecasts, it looks like your business may struggle to meet its liabilities as they fall due then you have a duty to act in the best interests of the general body of creditors. Matters to consider are:

• Wrongful trading – The danger of trading on and taking on additional lending to get you through the next few months is that it could worsen the overall position for all creditors. If losses are made and the company falls into insolvency, then you could potentially leave yourself open to action for wrongful trading.
• Unfair preferences – All creditors need to be treated fairly and on the same basis. This does not stop you seeking agreements with creditors to postpone payment/extend payment terms but it means you cannot pay one creditor in preference to another without good business reasons. In particular, if intercompany or director loans or any debts that you personally guarantee are paid ahead of other creditors then these payments could be challenged should an insolvency event occur.
• Sales at undervalue (gratuitous alienations) – You may consider the sale of company assets to help fund the business. If you have any concerns about the solvency of your company then any asset sales or assignations need to be at full market value so as to not prejudice your creditors.  Always get a certified independent valuation agent to value any assets before any sale so you can demonstrate that best price is being achieved.
• Protect yourself – Get advice on your options as early as possible. Accurate forecasting and scenario planning will help you see what the potential outcomes might be. Ensure full board agreement to all matters and minute the justification and business reasons for any actions taken.

Virtual Finance Functions

With the government currently encouraging workforces to work remotely where possible, finance teams working remotely could be struggling. It is important to consider having in place a virtual finance function (VFF) and cloud solutions. Click here to find out more about the benefits virtual finance function can have going forward.

Government Support Measures

This is very difficult period for all businesses and AAB is here to support and help you through it. For more information on the government Support Measures or any of the above, please contact Duncan Raggett.

If you are unsure about what government support package is available to your business, we are here to help. Please don’t hesitate to get in touch with us.