In this article, Dave Shalliday of Verde Corporate Finance looks at the challenge’s businesses are facing and considers a three-stage guide for management teams to consider while navigating these unprecedented times.
- Preservation and survival
How do you preserve your business during the current pandemic, what funding is needed to survive and what other key actions should management be taking?
We know that there has been considerable support offered by government and local authorities, as well as some of the mainstream lenders. The government have already begun to signal a desire to unwind some of the schemes, such as the furlough scheme, and no doubt the mainstream lenders will evolve their approach and revise their risk appetites.
CBILS, CLBILS, Future Fund, Job Retention Loan Scheme (furlough) and Bounce Back Loans have all played a role in helping businesses. While it is important that management teams give due consideration to what their business needs to survive these challenging times, it is also vital that businesses only look for what is essential to survive. In most cases repayments will need to be made at some point, and while short-term relief may be of benefit in the here and now, unless it is essential to survival it should be carefully considered, as deferred borrowing could cause issues further down the track. Is short-medium term debt the best option for your business? Do you need to consider the longer-term equity base of your company?
This article on business support currently on the market, should be a helpful information resource for businesses: CLICK HERE
- Prepare to transition into a ‘new norm’ market
It is important that business leaders consider shaping their organisation for the post lockdown conditions that we can predict with some certainty, and those we cannot. Much talk is now of the post-lockdown ‘new norm’ where businesses may be slower and more cautious than before the lockdown, and so a full return to the ‘normal’ we had come to know before COVID-19 is unlikely to happen for some time, if ever.
I recently read a report that suggested that ‘FOGO’ (fear of going out) may be the new ‘FOMO’ (fear of missing out). This points to the reality that while some people may be chomping at the bit for lockdown measures to be lifted, many more will have serious concerns about being in large public environments such as events, office environments and busy public transport. This anxiety could lead to some difficult considerations for businesses, and further unpredictable patterns in market conditions.
What we can predict with some certainty is that customer buying behaviour will be different, suppliers will themselves have changed their operating model, the acceleration of communication technology brought about by the pandemic has released a genie that cannot be put back in its bottle, and our employees will have different expectations.
Previously when we considered the resilience of our business, management would look at the traditional key dependences of supply chain, key customers, key employees, competitors, IT security etc. – global pandemics were either very low or non-existent in most plans. There is wide spread consensus in the scientific community that this current pandemic will not be the last. We need to prepare in a different way than we have historically.
- Unravelling the balance sheet and the paused P&L, to get back on track
With deferred loans or ‘holiday’ agreements in place for some financial commitments, as well as cancelled contracts and inactive staff members (furlough), it is fair to say that many businesses have needed to clamber aboard the life boat and manage a period of pressured cashflow management and borrowing just to survive. How management teams climb out of the life boat will have huge implications for the long-term future of their business.
It is of paramount importance that good planning and financial management goes into how a management team unravel those commitments and move forward. Here we see the importance of stage 1 and how we should only take action, borrow or defer when it is absolutely essential. Market conditions may not be back to pre-pandemic positions by the time those deferrals or repayments will begin, and cashflow and good financial management will be just as key in stage 3 as it was in the previous stages.
Coming into stage 3, the ‘landing’ needs to be very carefully planned, and if businesses have navigated the first two stages as well as possible, this stage should have a higher chance of success.
The common denominator here is good financial planning all the way through. To ensure in the early stages that the medium and long term are considered, and that we are not simply ‘kicking the can down the road’. Verde Corporate Finance have specialists who can act as advisers to an existing management team, and even as an outsourced Finance Director for those who do not currently have one in place.