Proactive planning through uncertainty

The first quarter of 2020 has seen the business landscape change quicker than ever before. Optimistic aspirations for the new year have quickly turned to concern as the COVID-19 pandemic sweeps ahead. Businesses are facing significant pressures on their cash flow. Research conducted by JP Morgan has revealed that the average SME has a cash buffer of just 27 days.

Whatever pressures business owners are feeling, decisions must be taken with relevant information to address the short, medium and long-term needs of the business.

Understand your position

In order to protect your firm’s working capital, you need to be clear and realistic about where your business stands taking into consideration the worst-case scenarios. The more thorough your financial assessments, the more you’ll identify potential issues by taking the following remedial actions:

  • Ensure your cash flow forecast is up-to-date
  • Review the business’s fixed costs, identify non-essential overheads and discretionary expenses
  • Chase any overdue invoices
  • Issue the invoices you can immediately
  • Review your insurance policies and see what aspects of business interruption is covered, as it may not be in the present circumstances. The government has indicated that the disruption caused by COVID-19 could cover policies for both pandemics and government ordered closure – provided all other policy terms and conditions are met. Your insurance provider will be able to answer specific questions.

Prepare for operational issues

You also need to know of any operational issues that may affect the business generating cashflow. This means:

  • Knowing the impacts of absences and working from home practices. Could adapting, or temporarily revising your business, allow you to continue to deliver your products or services?
  • Being aware of any supplier-related business continuity challenges, you have, or can foresee, so that interruptions can be planned for
  • Reviewing all supplier and customer contracts to ensure obligations are understood should unexpected situations arise, so any breach can be mitigated

Be proactive

Once you have this comprehensive financial and operational view it is vital that you are proactive in engaging with your relevant stakeholders.

  • Speak to your accountant to ensure your assessments are accurate. An early conversation with your bank and other finance providers is also recommended to appraise them of your situation.
  • Be proactive in contacting your suppliers, equipment providers and your property’s landlord should you envisage any financial difficulties and the possibility you will not be able to meet any due payments. Explain the position to them and ask whether they will accept reduced or deferred payments to help you. Ensure any agreements you reach are confirmed in writing by email or letter.
  • Stay connected with customers and keep them informed of your situation and any production or service delivery problems. Explain the steps you are taking to minimise COVID-19’s impact on your business and in your dealings with them.

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