The ongoing global coronavirus pandemic has caused enormous amounts of uncertainty, so what can you do to regain control and ensure that your business is in the best place it can be to deal with the ramifications of the crisis?
With the Bailiwick of Guernsey under social restrictions of a scale not even witnessed during the Occupation, it’s understandable that the very definition of ‘business as usual’ has changed, at least for a while. Every business sector has been impacted in one way or another by the outbreak and it’s therefore imperative to review those impacts and assess what the sensible and practical next steps are.
The principal factors affecting businesses are:
- Reduced consumer demand for goods and services
- Disruption of supply chains
- Availability of staff
- Lack of investment in capital improvements and construction.
These will certainly have an impact on businesses’ resilience and finances and many clients have already been in touch seeking advisory services to help manage the current situation. Here are some of the more common questions our team has been asked:
How can I ensure my business is as resilient as it can be?
A good start is to consider the following actions, among others:
- Review your debtors list and consider reducing payment terms.
- Look to issue invoices as soon as possible, 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.
- Consider creating a cash flow budget 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.
How do I know if my business is insolvent?
A business will generally be considered insolvent if either the value of its liabilities (unpaid suppliers, Revenue Service tax bills etc) are greater than its assets (cash in bank, value of stock held etc) and/or it doesn’t have the available cash to pay its bills as and when they fall due for payment.
What should I do if I think my business is insolvent?
Time is of the essence in this scenario, so be proactive and consider what the options for the business might be sooner rather than later. Draw up a cash flow for the next 3-6-12 months to work out where the pinch points are and what the solutions might be.
You’ll need to think about means of getting through the current shortfall, so in the first instace talk to your customers/suppliers and see whether they can help with your cash flow in the short term. You can also consider whether there are any sources of funding outside of the business e.g. director, shareholder or family member loan, that might be available to get through the tough patch.
Get in touch with your accountant to see if they can help or at least point you in direction of someone that can.
I am a director of an insolvent business, what should I do?
You should act quickly and seek professional help to devise a plan. Ignoring the problem will only make it worse so stop making payments out of the business until you have sought professional help or guidance and established a plan for the future of the business.
Who can help me?
Help is at hand if you find yourself in trouble. Your accountant or business adviser should be your first port of call as they have the experience and expertise to help you fully assess your situation and beginning plotting a way out of it. Resources like the Citizens Advice Bureau and the Guernsey Chamber of Commerce may also be able to provide support and guidance.
For further details contact your BDO adviser.