Planning to Mitigate Your Risk

April 23rd 2020

Assess the Situation

The current environment is changing almost daily, making it all the more important to assess your business’s financial position and near-term prospects and options on a regular basis.

A detailed review of the short and medium term impacts of COVID-19 on your business’s financial situation is critical. From this, you should be able to take appropriate steps to mitigate some of the adverse impacts of the pandemic with greater clarity, efficiency and effectiveness. We would recommend the following:

• Prepare/update cash flow forecasts and budgets; there is a general consensus that six months is the minimum businesses should be looking ahead to.
  • Rationalise sales forecasts to apply to the current economic climate
  • Critically assess fixed costs, as well as variable costs
  • Review sales ledger balances to establish recoverability and credit terms – how much will be received, and when?
  • Review company non-domestic activities – are target countries behind or ahead of the pandemic trend?
• Identify and plan for worst-case scenarios:
  • Devise contingency plans, and establish operational plans to implement these to minimise the disruptions to the business
  • Perform sensitivity analysis on various scenarios and their effects on your working capital
  • Collate current and forecasted business activities with current operational capacity
• Review financial documents and agreements:
  • Determine if there is any flexibility on any loan covenants, and if there are additional facilities on which to drawdown
  • Review any force majeure clauses in loan agreements, rental agreements and/or commercial contracts, for example
  • Identify possible scope for additional funding from existing lenders/bankers/equity release to maximise liquidity
  • Check insurance documents for business interruption clauses
• Establish eligibility for government grants and support:
  • Coronavirus Business Interruption Loan Scheme “CBILS”
  • Coronavirus Job Retention Scheme
  • COVID-19 Corporate Financing Facility
  • Cash grants and business rates relief
  • Deferral of Q1/Q2 2020 VAT payments and Income Tax
• Identify implications for key stakeholders:
  • Consider the radical changes to operations in relation to existing staff workload capacity, and employment rights
  • Identify suppliers who are critical to your operations not liable for immediate substitution or suspension
  • Establish payment priorities and discuss alternative payment arrangements, such as payments on account
  • Review status of key customers and their contracts and their ability to continue to conduct business and at what level for the foreseeable future

React 

Protect your financial position, inform key stakeholders

Maintain maximum liquidity as a buffer against sudden and dramatic changes to operations:

• Negotiate/explore options to expand overdraft/loan facilities:
  • Identify any assets that can be used as collateral
  • CBILS loans eligible for companies who qualify for loans in standard economic conditions
• Focus on business-critical activities and assets, divert resources from non-core areas
  • Disposal of highly liquid investments and non-core assets
• Review of credit terms with customers and suppliers to maximise net cash inflow
• Review future deliveries of stock/supplies to ensure effective stock management
• Tailor existing operational capacity to immediate and short term demand; rationalise existing stock levels, locations and management
• Review and mitigate any overexposure to foreign exchange volatility 

Maintain open and constant lines of communication with key stakeholders, narrowing the expectations gap:

• Inform customers of any way they may be affected
• Manage and limit expectations of suppliers
• Regularly update workers of any changes to their situation, with appropriate recourse to legal advice
• Regular notifications with shareholders about ongoing developments

Adapt

Maintain control of critical issues, maximise productivity

Ensure business continuity where possible; maintain productivity and customer service:

• Update business continuity plans for the inevitable need to work remotely. Wherever possible:
  • Determine roll-out of work from home protocol for relevant departments and expand remote working policies
  • Revise lines of communication between staff and management by developing and expanding and facilities
  • Ensure continuing availability of remote services, including additional capacity as a buffer against surges in activity
  • Bolster cyber security defences against proven increases in cyber attacks
  • Ensure ongoing compliance with industry-specific regulations, as well as health and safety
  • Listen to your staff – what do they need to do their job effectively?
• Redefine and refine definition of success:
  • Tailor performance monitoring to new operational eco-system
  • Revise KPIs of staff based on new working arrangements and timeframes of given targets/goals
  • Identify specific objectives for the company, assess achievability
• Maintain optimal customer service
  • Review client/customer terms of engagement – how can they be serviced effectively within the restrictive framework?
  • Revise incident response protocols and CRM capability to maintain service levels

Reform & Rebound

Prepare the business for the rebound in commercial activity.

A potential “V-shaped” recovery will lead to significant increase in commercial activity and demand for goods and services.

• Identify potential future growth options and its implications:
  • Evaluate areas where demand will increase the most and apply resources accordingly
  • Delay factors in the supply chain – COVID 19 still affecting suppliers
• Critically review platforms and functions adopted during the transition:
  • What functions worked best, and can they be continued?
  • Capacity for greater working from home may lower need for leased commercial floor space
• Consider staffing levels :
  • Will there be enough staff to meet increases in demand/growth?
• Consider annual leave:
  • Government has allowed staff to carry forward the next 2 leave years
  • Consider operational impact of higher intensity of annual leave amongst staff
  • Consider impact to profitability of staff carrying forward holiday

Stay Safe

Finally and most importantly, a company’s priority should be to protect the health and well-being of employees and customers throughout.

• Stay up to date with current developments
  • The Government is broadcasting daily updates on guidance and progress
  • Government updates about business support is updated here: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
  • General government advice about COVID-19: https://www.gov.uk/coronavirus

Please contact your BGM/BGM CF advisor or email communications@bgm.co.uk if you would like any assistance

Full details and updates relating to COVID-19 are included on our BGM website www.bgm.co.uk/insight/covid-19