• Matthew Brown

How to Help your Business Survive the Coronavirus Crisis?

These are unprecedented times. There are big shifts in the way the economy operates and is distributed, and huge economic uncertainty. The public health crisis is making people reevaluate their personal priorities and lifestyles. Already, the bond between employer and employee has been thoroughly tested – employers have had to place more trust in their staff to work from home and meet new unexpected demands, and have had to offer staff flexibility to meet childcare and other caring responsibilities. The employee-employer relationship is a two-way bond, and perhaps organisations that treat staff as expendable ‘resource’ and do little to engender any staff loyalty will be the ones to struggle the most.

Keeping to your existing business model is unlikely to be financially sustainable. We are seeing a fundamental shift in the business landscape, and your business has now to choose one of three options:

1 – Adapt your business model and keep trading

The new economy is seeing some businesses thrive and others facing a complete loss of income. It’s a very mixed picture. Organisations with high levels of grant dependency have (for now) survived better than those more reliant on trading income. If you can move your goods and services online or into remote delivery, you probably have already done so – but not all activity can be delivered this way.

Some commentators are talking about a V-shaped dip – that the economy will bounce back to where it was before with just a short hiatus. My view is that this is unrealistic. The lockdown will last two to three months, possibly longer. During this time, new patterns of behaviour and consumption will start to form. When we are finally allowed out of our houses again, will we go back to consuming goods and services in the same way as before? Probably not, not least because continuing demands for social distancing and the likelihood of further waves of infection and further lockdowns will mean many consumers will be cautious about what they do for some time to come.

So, if you are continuing to trade, you need to assess how sustainable this is over the medium term (twelve months plus). Be honest with what future turnover is going to like in this new world, and what margin levels you can cope with until things do finally return to normal. Can a shop or café still deliver the volume of turnover required to cover operating costs if there continue to be social distancing requirements?

It is also a time of opportunity in some respects – new grants and beginning to be offered, not just by the government but by a range of trusts, foundations and social investors. Whilst initially the focus is on helping organisations to survive, in time this will move to commissioning and engaging new work. Although routes to market may be shifting, there is still strong demand for services that provide social value, and perhaps the local economy will gain an advantage over the global economy for a time. Now could be the time to talk about mergers and acquisitions, as we see weaker organisations unable to survive but demand for services still remain.

2 – Hunker down and wait for the storm to pass

If continuing to trade in the current climate is not viable, then your next option is to cut costs down as far as possible and hibernate until the economic springtime.

This is what the government support schemes have primarily focused on – the furlough scheme to pause staff costs and the self-employed grant to tide people over in the short term.

Costs of sales should diminish if there are no sales, but cash may be tied up in stock, which may have a limited shelf-life.

Rent costs are going to be an issue for many – how that cost is to be shared between landlord and tenant will be down to individual negotiations and who can bear the cost the most. It will be interesting to see how different parts of society work together, or not, to resolve such business issues.

Cash flow is going to be the biggest issue for many businesses. Support from HMRC to delay tax payments is welcome, but as the furlough grants and self-employed grants will not reach us until May or June, many organisations will see a short-term cash dip. How flexible the banks will be in providing short-term borrowing will be key to the survival of many businesses. The government-backed loan scheme is up and running, but if banks take their traditional risk-based approach to lending, then many businesses will not be able to access the scheme.

A detailed cash flow forecast and profit and loss forecasts for a range of future scenarios are now fundamental for you to manage your business.

3 – Call it a day

If your business is clearly not going to survive all this, the opportunity to merge with another organisation, or to look to sell up, may be the least worst options left. The business landscape has changed, and we must change the way we work too, however painful that may be.

How Adding Value can help

At this time of turmoil, Adding Value is providing some FREE FINANCIAL ADVICE sessions to values-led businesses, micro-businesses and freelancers.

We are here to help your business navigate the new economic landscape and to enable access to government support, to grants and to loans that are being offered to help you through these troubled times.

If you want to take advantage of speaking to one of our team of experienced finance directors and accountants, please complete this form and we will get back to you.

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