COVID-19/Coronavirus: Advice for businesses
18 March 2020
- See R3's list of sources of support for businesses and individuals
- R3 statement on the business support measures announced by the Chancellor (17 March 2020)
The COVID-19 pandemic has already made sweeping changes to how the UK does business. With great uncertainty as to how long the changes will last – and whether or not they will permanently change the business landscape – R3 has compiled some advice for businesses, below.
- If you are the director of a business facing financial difficulties, you should seek professional and qualified advice from an insolvency practitioner or reputable restructuring professional as soon as possible, to safeguard your company's future. Use R3's 'Find a member' tool to look for suitable sources of help near you.
Planning and processes
It can be difficult to make plans in the midst of a crisis, but every business will need to look at its existing processes and situation, and decide how to cut its cloth accordingly. As has already happened for many, new ways of working are highly likely to be required.
Senior operations staff could be brought together to form an emergency response committee, allowing for rapid reactions to changing circumstances, and updated methods of working in light of new information and guidance from the Government and the health authorities, as well as evolving customer needs. Additional board meetings - to be held using virtual communications technology - are another sensible response.
Directors should also be extra vigilant that turmoil and the suspension of normal processes does not provide cover or opportunities for fraudsters, either inside or outside a company.
Cashflow and funding
First and foremost, it will be essential to have short-term weekly cashflow forecasts, ideally 13 weeks forward, to identify critical receipts and outgoings. The immediately critical timing window appears to be 25-31 March, with significant rent and payroll outgoings, not least many businesses' rent Quarter Day.
All outgoings need to be put under the microscope, to see where savings can be made. Will suppliers and/or creditors accept deferred payment plans? Will leasing companies and hire purchase providers accept a temporary suspension of payments on core business assets? Can assets be refinanced at more favourable rates? Will a landlord accept a rent holiday, for the immediate crisis period? Commercial landlords may well be inclined to work with business tenants, as it could well be better to offer a temporary rent-free period than to risk a lease being surrendered, making the landlord liable for the non-domestic rates due on the property. If non-domestic rates are paid by direct debit, this should be cancelled, and the situation regarding rates kept under review.
The Government has announced measures to keep finance flowing to businesses, which is welcome, and many banks have also said they will be applying forbearance to business customers. This will be vital, in many cases, as the economy greatly slows. Ensure you are in contact with your bank, to apprise them of new developments, and to find out how much support you can expect from them.
Business banking clients can also ask their bank for an overdraft, or an extension to any existing facility, which will help to smooth a cash crisis. Does the business have undrawn lending facilities which could be accessed to provide emergency funds? Directors may also wish to explore alternative funding providers, such as peer-to-peer lenders, who may offer additional sources of finance.
HMRC has set up a helpline for businesses and the self-employed who will require extra time to pay their taxes due to the impact of COVID-19.
The impact on supply chains should be closely monitored; any significant extension to larger companies' payment terms will cause magnified problems for the smaller companies which supply them.
In order to curb the spread of the virus, working from home for all staff for whom it is an option is strongly recommended.
Many companies, facing a crash in demand for their products or services, will have to make difficult decisions about whether they are able to keep all staff on their payroll, and whether those staff which they are able to continue to employ will be kept full-time or have their hours reduced. Staff contracts may have to be rewritten in order to adapt to new duties, changed work schedules, or reduced benefits.
Communication with all stakeholders in a business - from staff, to customers, to suppliers and contractors, to creditors - is a must. From reassuring customers that necessary steps to prevent the spread of the virus have been taken, to keeping staff informed of the measures taken by the management to respond to drastically different trading situations, open and honest communication will be vital in maintaining key relationships, and allowing other stakeholders to make decisions based on the best possible information. For example, if customers have pre-paid for events or trips, asking whether the business can hold on to the deposit until the event or trip can be rescheduled may help smooth cashflow.
Senior staff can be appointed as points of contact for key customers, suppliers and joint ventures, staff, and lenders, for day-to-day liaison.
Check your business's insurance policy to see whether it includes a "force majeure" clause, which will provide compensation for lost income if certain conditions are met; speak to your insurance provider for more information on your specific situation.
Wherever possible, business units which are losing money due to the current situation should be mothballed, and non-core assets should be sold, to allow business owners and directors to focus on preserving income and the survival of their company. Directors should consider whether a wholesale restructuring of the business will enhance its chances of survival and success.
The Chancellor's message that the Government will do "whatever it takes" to support businesses at this unprecedented time for the economy is welcome, but even so, every company in the UK is likely to be affected in some way, while staff, customers and suppliers will also feel the impact of behavioural changes due to the virus.
If your business model has been affected by the upheaval, turning to an insolvency and restructuring professional for advice at the earliest opportunity could be crucial. Keeping up morale will also be helpful: whatever happens, people will still need to be fed, clothed, find entertainment, move items from place to place, and all the innumerable other activities which make up the economy. With planning, support, and good communication, it will be possible to get through the current situation, and look to the future once more.
R3 members can provide advice on a range of business and personal finance issues. To find an R3 member who can help you, click below.