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Business Resilience and Cash Flow

22 April 2020

The rapid outbreak of COVID-19 presents a significant business challenge. While there have been other ‘black swan’ events before, they all lacked at least one of the key ingredients of scale, severity and speed that are currently being experienced. During this period all Guernsey businesses are having to review their readiness and the potential impact the outbreak may have on their operations, supply chains, employee well-being and future plans to maintain productivity during these times. Here, we help you to explore the importance of cash flow.

The effects of the coronavirus are widespread and industry agnostic. All industries will be assessing the impact of a number of common factors:

  • Consumer demand for goods and services due to shifts in income and/or restrictions on consumers’ ability to move freely.
  • Disruption of supply chains due to restrictions placed on the movement of people and goods.
  • Availability of employees due to illness or restrictions of movement.
  • Lack of investment in capital improvements and construction reducing demand for many goods and services.

From a business perspective, the critical element in any time of uncertainty is to ensure that the company’s liquidity position can be maintained and to buy time for the company to recover. 

We have developed a number of frequently asked questions to help businesses think about their cashflow position.


What should I be thinking about with my business to be as resilient as I can be?


Consider the following actions, among others:

  • Review your debtors list and consider reducing payment terms.
  • Actively follow up on outstanding debtors as cash collection is essential at this time.
  • Look to issue invoices as soon as practicable, keep your paperwork up to date.
  • Conduct a thorough risk assessment of business operations, to assess the level of possible interruption and see if there are ways to mitigate potential impacts, consider financials such as problems with failing debtors, but also supply chain disruption and employee resources should they be unable to work.
  • Review the pace of expenditure, the goal is to attempt to slow down the cash burn rate.
  • Create a cash flow forecast and regularly update to measure your cash flow against expenses.  Model this with scenario reporting for “what if” analysis.
  • If possible, re-prioritise the allocation of resources to unaffected business lines.
  • Identify measures for controlling budgets and making cost savings, such as assessing the possibility of outsourcing certain business processes in a cost-effective way.
  • Explore opportunities with variations on your services such as the hospitality sector providing take-out meals, the retail sector with home delivery, are there ways you can continue to provide services whilst maintaining social distancing precautions.
  • Identify alternative solutions if forced to suspend operations at the business premises.  For example can you work from home?   Can you use the time to bring other parts of your business up to date, rechange focus on those jobs you have been putting off concentrating on others?
  • Block any discretionary spend such as marketing cost, anything that the business does not need or the ‘nice to haves’, remove or defer.
  • Understand what work is critical and what can be deferred or deprioritised.
  • Consider staff costs, reducing hours, 3-4 day weeks, 80% time reduction and salary.  Review States of Guernsey payroll co-sharing as alternative to laying off staff if you operate in an affected sector.
  • Can you defer some of the obligations to staff such as deferring pension contributions or bonuses.
  • Speak to accounting firms who can assist with providing template cash flow account spreadsheets to monitor your cashflow.


Build your ‘new world’ cash flow forecast

  • Build a 12-month cash flow forecast - 3 months (weekly) and then 9 months (monthly) taking into account your ‘new world’ – build in revenue impacts but retain committed expenses as is for now.
  • Factor the disruption and uncertainty as best as you can assessing your projected cash receipts. 
  • Use a best, normal and worst-case scenarios, so you can identify both a minimum and maximum funding requirements.
  • Current and future sales will need to be carefully reviewed, time-based fees may need to be revised based on realistic staff utilisation due to remote working.
  • Look at fixed costs first, i.e. the ones you know are unlikely to change such as mortgage/rent, salaries, insurance etc. Can these be deferred in the short/medium term?
  • Factor in any likely changes to variable costs based on your current and forecasting operating models with a view to minimise costs such as office cleaning (presuming the office or premises is shut), utilities etc.
  • Defer any dividends or distributions that will put pressure on your cash reserves.
  • Understand if you are cash flow positive. If not understand your cash burn and your runway before existing reserves are exhausted.


If you have a cash deficiency now or coming up – identify measures to reduce costs or increase revenue

  • Identify discretionary or non-business critical expenditure to eliminate immediately.
  • Identify overheads to defer, adjust or remove (e.g. rent, equipment leases, employee costs).
  • Identify capital outflows to defer or adjust (e.g. dividends, bank loan repayments, capex).


Engage with key stakeholders regarding potential standstill arrangements

  • This will be critical – you need to engage with key creditors such as landlords, Tax office and suppliers, explain your situation and attempt to negotiate stand still arrangements where possible.
  • An independent report from your accountant or financial advisor on your financial position will bring credibility and assist negotiations.


Conduct due diligence on other capital sources

  • Consider collateral and equity available to support finance. Engage with your existing financiers - bring them into the ‘tent’.
  • Consider equity sources – do existing shareholders have capacity?
  • Are there logical buyers of your equity you can approach?
  • Do you have assets that are non-core to realise in short time to generate cash?


Consider government support available

  • Identify the measures in the States of Guernsey support programs that are available such as the Payroll Co-Funding Scheme (if applicable to your sector) the grants to small businesses and self- employed as well as the loan guarantee scheme.
  •  Identify how they impact cash flow and apply where relevant.


Develop a 90 day ‘business rescue’ plan

  • Develop a 90 day action plan incorporating steps above. Include:
  • Implementation of the cash flow measures identified (i.e. apply to financier for funds, negotiate with creditors for standstills.
  • Engagement with key stakeholders such as employees, financiers, landlords, customers and suppliers and remaining creditors to ensure they understand your position to continue business.


Update your cash flow forecast

  • Recast your cash flow forecast in-line with your 90 day plan.
  • Forecast for 90 days initially on weekly basis – be sure you can remain cash flow positive.
  • When you are confident you can manage through the next 90 days – extend your forecast for a further 9 months (taking into account timeframes of stand stills agreed) to determine how long your “runway” is now…
  • understand the point where you exhaust cash reserves and which you cannot go past (if within the next 12 months).


Implement the plan and monitor regularly

  • Start engaging with relevant stakeholders to put your plan into action.
  • Monitor progress regularly (weekly to begin with) and keep updating the cash flow forecast weekly to monitor the length of your runway.
  • Be conscious of when your cash reserves are exhausted so you do not continue to incur expenditure past that point.

For further advice or support please contact your usual BDO adviser or one of our key contacts.