The economic impact of the coronavirus crisis will be felt right across the business landscape. Whilst some sectors will be more acutely affected than others, the nature of our interconnected economy means that all businesses will be affected in some way, to a greater or lesser degree.

Mitigating impact

The impact has the potential to be significant and whilst the UK and Scottish Governments have done and are likely to continue to announce various support measures, the resilience of your business and your people will be tested like never before. It would be unwise to rely solely on Government intervention and all businesses need to consider what actions need to be taken to mitigate the impact. This will impact on our firm and our procedures on issues such as business continuity, and remote working will be tested as well as the financial pressures that will entail. We know exactly how you are feeling and what your concerns are. We are here to support you through these challenging times.

Your practical steps to take now

In this guide we have set out a number of practical steps that we believe all businesses regardless of size and sector should be taking right now. We will continue to provide updated guidance, particularly on the Government incentives as the details emerge and new announcements are made. 

All businesses need to look critically at their operations and consider how they could be impacted by this crisis. All businesses will have different facets to consider but we've created guidance on the key areas that need to be considered. Use the links below to navigate to the section that you're concerned about now.

Key areas:

Sales

Most businesses are going to see a change in their demand to some extent. For many businesses it will be a reduction, particularly in the hospitality and retail sectors, but some businesses will see sales spike as business and consumer behaviours adapt to this event. Increasing or decreasing demand will present different challenges and key considerations should include:

  • Proactive discussions with key customers to identify how the slow-down is affecting their business and what their short- to medium-term demand looks like. This will give you an idea of what resource levels you will require over the next few weeks/months to meet this and how it will affect your cash inflow.
  • Assess different scenarios to consider the potential impact on profitability and more importantly, cash flow. Remember that increasing sales could have an adverse cash flow impact due to increased working capital.
  • Even if demand continues, consider potential issues around continuity of supply.
  • New customers – businesses may look to you as an alternative supplier as a means of reducing their own business continuity risks.  Robust credit checks should be undertaken and consider requesting advance/deposit payments and bank guarantees.  Remember that they may be on stop with their existing supplier for non-payment.
  • Adapt your model – your existing model may be significantly affected but consider how you could adapt this to mitigate against falling demand.  For example, restaurants are offering delivery services and some enterprising taxi drivers are stepping in to offer support for that activity.  Breweries may well see reduced sales due to pubs being closed and need to look to alternative channels.

At Johnston Carmichael, our Consulting Team headed up by Alistair Black and Ewen Fleming are on hand to support clients understand the impact on their business and how they may be able to adapt to mitigate the impact.

Back to the main contents menu

Cash Flow

In the wake of the financial crash in 2008, the popular mantra was ‘Cash is King’. Well cash is king once more and preserving cash flow is going to be a critical objective of businesses in the coming weeks and months. Changing levels of sales will impact on cash flow but even where a business can continue to operate profitably, cash collection is going to be more challenging as customers and suppliers tighten their own credit procedures.

Businesses should look critically at this and run robust scenarios, identifying any shortfalls and implementing actions to bridge those. Crucially, this needs to be an ongoing process and we would recommend that cash flow forecasting should be done on a daily/bi-weekly basis whilst this situation unfolds.

At Johnston Carmichael we can support you in various ways, regardless of the size and complexity of your business. 

Our specialist financial modelling team have developed a bespoke cash flow tool in response to the coronavirus crisis. It provides a detailed ‘200 day’ daily and weekly cash flow forecasting model that comes with a step-by-step training video. This is suitable for businesses of all sizes and has the flexibility to modify cash inflows and outflows on a day-to-day basis, as circumstances evolve.

The model also allows you to see the impact of government support initiatives such as furloughing staff, drawing down on business interruption loan schemes, obtaining grants and taking payment holidays for various taxes. These forecasts can be particularly useful if you are considering applying for additional bank funding.

Our short video below explains more about how this works. 

For SMEs who use digital accounting software solutions such as Xero, Quickbooks, etc there are several cash flow forecasting tools which integrate with your accounting data, enabling a live view on cash forecasting that you can amend to reflect different scenarios. Our Digital Solutions team have extensive experience of these products and can advise on the best option for your business and help with the set-up and implementation, which is generally a straightforward process.

Having assessed your cash flow requirements, what are some of the options for alleviating any shortfalls?

  • Maximise cash inflow: Actively manage your aged debtors to identify when you can expect payment. Your customers could well be facing the same challenges as you; if so, try to find a compromise that works for you both. Review credit terms and wherever possible reduce or remove these to speed up cash collection.
  • Minimise cash outflow: Calculate your cash “burn” rate – that is, the cash your business consumes on an ongoing basis. List your regular, recurring cash outflow items – how much, to whom, what are they for, and when do they fall due. Identify those that aren’t business-critical and stop them as soon as possible.
  • Shareholders/directors/owners – if you are considering raising funding from these sources then think carefully about the structure. Is it equity or debt? Could it be a convertible debt? If it is debt, consider before the funds are invested whether a security can be put in place to put the debt provider in a preferred position if the business is unable to continue trading.
  • Coronavirus Business Interruption Loan Scheme (CBILS) – this is a scheme administered by the British Business Bank. Full details are yet to be published but it is temporarily replacing the Enterprise Finance Guarantee Scheme and will allow businesses to apply for bank funding of up to £5m which is backed by a Government guarantee. It is expected to be up and running from 23rd March but participating lenders will take time to assess and process applications. Our view is that for many businesses who are most acutely affected, it will be challenging in the short-term to be able to present a ‘sound borrowing proposal’ and this is more likely to be a solution for businesses as we emerge from the crisis to provide expansion funding as the business recovers to previous levels. The scheme is administered by high street banks and much will depend on their practical application of the guidance given to them by the British Business Bank. Having an early dialogue with your existing bank around the possibilities here will be beneficial. Banks will likely require a set of integrated financial projections to support an application. Find out more on the CBILS page on the British Business Bank website.
  • HMRC have set up a dedicated helpline to support businesses affected by COVOID-19. A business can ask to defer tax payments and each case will be considered on its own merits.You should expect to be challenged on other possible funding sources and to what extent you really need to defer tax payments and so careful planning is essential to present a considered and credible case for support. You can find out more details about the helpline on the Government's website. In our view this is a must for all businesses at this present time.
  • Aside from discussing the CBILS with your bank, you should be having immediate dialogue with your bank. Being proactive about this will give you the best chance of securing support and understanding the options available to you. If you have existing debt facilities you may be able to agree loan repayment holidays to give much needed breathing space.

If you have a business that can benefit from Research and Development Tax Credits but you are not yet at your financial year end, one option would be to shorten your accounting period and allow an accelerated claim to be made. Clearly there is a trade-off between an accelerated repayment and a higher full-year claim but cash might be essential now. There are rules around making these changes and we can advise you of these and provide you with additional information to enable you to make an informed choice.

Back to the main contents menu

Your people

First and foremost you need to look after yourself and your people. Your staff will be understandably concerned and worried and regular, clear communications are critical. Adhering to the guidance from the Health Authorities is vital and we would encourage you to implement ‘social distancing’ if people are not working remotely. If one person has to self-isolate you could have a significant absence problem to deal with.

For many businesses, your people will be your biggest asset and the biggest cost in your business. You will potentially be faced with very challenging decisions if you need to reduce costs. There is some excellent guidance on the ACAS website on various issues related to this.  

We operate an outsourced payroll service for thousands of businesses and our team are up to speed with the new guidance on statutory sick pay. Outsourcing payroll is one area you may want to consider as part of your Business Continuity assessment.

Back to the main contents menu

Business Continuity

Many of you will already have implemented your business continuity protocols, in particular around remote working. You do need to keep this under review and as a minimum we would recommend:

  • Identify critical operations and workforce plan if absence is a risk (e.g. IT, payroll, cash collection/payments, product/service continuity);
  • Identify and communicate your chain of command with deputies in place for key roles;
  • Review your IT infrastructure to support increased remote working;
  • Assess the impact of your main physical space becoming unavailable;
  • Review of key contracts to establish any risks arising from this event.

Back to the main contents menu

Supply Chain

Your supply chain may very well become disrupted as a result of this event. You should seek to have as full an understanding as possible of the potential impact to allow you to consider any risks around continuity of supply, changes in credit terms and impact on pricing due to supply/demand fluctuations.  You may need to consider increased lead times for supply which will impact on your cash flow.

If you need to source alternative suppliers, they may demand upfront payment until you have an established trading relationship with them.

Back to the main contents menu

We're here to help

There may be other aspects in your business that need to be considered beyond the ones set out above. At Johnston Carmichael want to put the full weight of our teams behind our clients to support you all through this challenging period. Being a business owner can be a lonely place and even if you simply want to share your concerns over a coffee, please do get in touch.

The key thing to remember is there are proactive steps you can take now to mitigate impact. When you’re ready to talk, we’re here to help you action these.

Get in touch with your usual Johnston Carmichael contact or another member of the Johnston Carmichael team.