Your business is about to be stress tested like never before - here's what you need to consider

Profile picture for user gonzodaddy By Den Howlett March 19, 2020
Summary:
Keeping your business fit and well is hard at best. Here are some topics to consider as the COVID-19 crisis deepens.

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For anyone in the UK born after 1954, the year food rationing ended in the UK, the COVID-19 crisis represents the most frightening event of their lives as both individuals and families wonder who and when the disease will strike next. Four members of our extended family are quarantined on the off chance that one of them who complained of a sore throat and slight fever last weekend may be infected. Another member of our family is due to give birth next week and needs hospital treatment. Her bed is assured - as of now. 

Schools in our area close this Friday for a minimum of two weeks. There is talk of summer exam cancellations and how that impacts 'results.' Pubs, local farmers and butchers have started delivery services and our local Facebook group provides regular updates on what's happening in our area. Yesterday our local mini-market ran out of bread. That's never happened before. 

For business more broadly, the problems are equally serious, The compounding effects arising from (likely) accelerated holiday pay, an uptick in sick pay, the ongoing need to stay on top of regulation, supply chain disruption and the almost inevitable squeeze on cashflow are coming together in ways that will stress test all of us.

So what are the key areas where you need to pay the most attention?

Yesterday we heard that payroll services may come under pressure. Today, we have more color on the topic as the UK government laid out a raft of help measures, the most eye catching of which was a commitment to providing £330bn in lending by guaranteeing up to 80% of business interruption loans of up to £5 million per business. 

A business checklist

RIght now, businesses need to know what they should consider. Here is a checklist we obtained from our professional advisers. 

  • Consult with employees, on matters including:
    • Remote working
    • Early holidays
    • Short-time working
    • Sick pay policies
    • Health & safety policies
    • Redundancies and temporary layoffs
  • Liaise and notify customers, suppliers, contractors and trading partners of your contingency plans
  • Defer tax payments by agreement with HM Revenue & Customs (HMRC), for:
    • PAYE
    • NIC
    • CIS (Construction Industry Scheme)
    • VAT
    • MGD (Machine Games Duty)
  • Defer business rate payments or claim business rates reliefs, if applicable, via your local authority
  • Agree to rent and expenditure deferrals
  • Prepare new or updated bank facilities, including capital holidays
  • Consider using the Government’s business interruption loan scheme
  • Defer capital expenditure
  • Defer finance payments, hire purchase and leasing
  • Accelerate income
  • Update credit control procedures
  • Reduce stock levels
  • Review insurance policies
  • Review all contractual obligations and advanced orders
  • Review your business’s terms & conditions

Some of these measures will be easier to execute against than others. Obtaining government aid should, in theory, be straightforward. But with measures only recently announced and precious little detail on how any of that aid will work, there will be a multitude of questions accompanied by answers that vary from region to region. Here is a run through of the various packages

Cashflow and supply chain

Top of my list is cashflow management but then everyone will be under pressure and with the best will in the world, businesses seeking to do the same will meet with widely different outcomes. Deferring capex is a no brainer but running multiple cash flow simulations for different deferral scenarios and/or receipt delays will test the finance function in new ways. Time sensitive transactions that rely for their effectiveness on understanding legal constraints will present special problems, especially for those firms with year ends coming up in the next few weeks. 

On the supply chain side, SpendMatters is offering a PRO Survival subscription at reduced pricing. This is especially valuable to those in procurement. Try this free resource too

To the above checklist, we would add that technology can help but it is a combination of people, process and technology that has always been the key to driving value. 

In the past there has been too much emphasis on technology and process as decision drivers. Now is the time to take the opportunity to put people at the center of how you do whatever is necessary to 'keeping the lights on' while also acting responsibly.

Remote working is the obvious first choice to consider but equally, we are aware that any business engaged in manufacturing, mining, farming and other labor intensive industries is faced with incredibly difficult decisions. And what about those parents who have to work either at home or at a place of work and who now find themselves with unscheduled childcare? Entire industry segments face special strain. Here is one example.

We anticipate that any business involved in private sector house construction will almost certainly shut down or, at least, be severely curtailed. The knock on effect for those providing services around house buying such as surveyors, estimators, building services, lawyers and the like will see significant impacts. It is an open question whether disruption in the construction sector will broaden to ongoing capital projects or public sector contracting. Here is what government said the other day. And for some good news, the introduction of new IR35 rules for the private sector will now be delayed from 6 April 2020 to 6 April 2021.

Final words

While we're all in the early days of understanding the impact of COVID-19, the main message is not to panic. Those I speak with are most often either bewildered or confused. One person in the packaging industry summed it up well:

For us it seems to be business as usual but what do I do if my workforce is hit with the virus? Someone's got to keep on top of the machines, even those that are highly computerised? The industries we serve need packaging - how else will you get your 24-pack of loo rolls? But what happens if we can't function effectively? We just don't know and it's not as if we can bring on a contingent laborforce at the drop of a hat. If we decide to proactively shut for a fortnight there's no guarantee the workforce can return and even if it does, there's no guarantee it doesn't subsequently get sick. 

Getting reliable and actionable information has to be the first priority. We are doing our bit and we know from talking with partners that all of them are working hard to provide customers with the best set of answers they have to hand.

Yes, our inboxes are stuffed full of advice, most of which is well-intentioned and sense making, some 'advice' is barking mad. It isn't hard to spot the difference. Pick what works best for you and keep safe.