Coronavirus – a practical guide for business owners
By Sarah O’Toole, Grant Thornton
It’s no exaggeration to say that the global coronavirus pandemic has caused the greatest peace-time economic shock in history.
As governments around the world have imposed restrictions on individual movement and closed borders in bid to stop the virus spreading, hitherto profitable and viable businesses across multiple sectors including aviation, hospitality, events and retail have been plunged into a deep and uncertain crisis.
So, what can businesses do in such unprecedented challenging and uncertain times?
While we await the introduction of the Chancellor’s £330bn economic package to support the economy announced this week, we’ve produced a seven step guide which businesses should find helpful if they find themselves impacted during these unprecedented times.
1. Remember cash is king
Companies that have not faced a liquidity crunch before can find the actions needed to change their cash flow management processes overly demanding. However, moving to a receipts and payments basis, daily forecasting and integrating short- and medium-term forecasts almost always increases headroom, runway time to implement other actions and confidence with shareholders and lenders.
2. Be proactive in speaking to your lenders
The more notice that you can give your debt provider of the potential impact of coronavirus on trading performance and liquidity, the more chance there is of getting the flexibility you may need.
3. Prioritise existing shareholders
While new money could be raised from third parties, it will potentially be both expensive and a difficult process. Most often, the existing shareholders and lenders to your business should be your priority.
4. Working capital modelling is essential
Certain types of debt facilities are more-quickly impacted by downturns in trading. This is especially so for asset-based facilities where available funding is driven by debtor and stock levels. Careful modelling of the impact of trading on headroom levels is essential.
5. Review temporary finance options
Other sources of temporary financing include deferral of monies due to HMRC through a ‘time to pay’ arrangement, customer payment profiles and asset specific finance.
6. Stress testing
Stress testing forecasts for different impact scenarios will help provide better clarity on the sufficiency of liquidity and inform the required actions and asks of financial stakeholders.
Check your compliance with the covenants and obligations in your various debt facilities, including the representations that have to be made on any drawdowns.
We hope you find these steps useful and it makes sense to revisit as the situation evolves – to discuss any queries related to the impact of the coronavirus on your company, or if you are concerned about your responsibilities as a director as a result of liquidity issues, please contact me, or one of the team here.