Getting back to business after the Covid-19 shutdown

Now that Covid-19 restrictions are being lifted on a phased basis, businesses should already have begun to develop strategies that will allow them to reopen with a degree of certainty.

Devising the means to generate cash flow should be central to any such strategy. Ask any trainee accountant what is more important; profit or cash? They'll tell you that while profit is good, "cash is king". Cash is central to business survival.

Businesses need to prepare rolling cash flow projections for the next four to six weeks at least. This will not be easy. There will be a few iterations and a number of different scenarios, but at least businesses can begin to identify finance gaps and understand the scale of any problem. It is much easier to come up with solutions when you have a better understanding of the key variables.

The focus will be on managing working capital and cutting the cost base. Businesses need to identify cash outflows that need to be cut, reduced or rescheduled, and begin negotiations with affected third parties.

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The earlier these cash flow projections are prepared the better, albeit they will need to be reviewed frequently as the public health and economic situation evolves.

Income streams can be more difficult to determine. Whilst it will be difficult to predict the level of demand, it would be naïve to expect that demand will return to pre-Covid levels overnight.

Consumers may well reduce their spending due to the negative impact of the recent restrictions on their own financial position, and may continue to reduce their movements to protect more vulnerable relatives. In such circumstances any business restart should be carefully phased where feasible.

Innovate

Businesses should also innovate around ways to market that are robust should a second wave of the virus hit. Online retailers appear to have benefited from social restrictions. However, it is important to note that online trading is not always the answer for every business.

There are a number of boutiques, hairdressers and beauticians who have been taking customer orders using phones and other messaging services. Continued communication with staff is also vital. Many staff are also looking at their own budgets, and it is important to keep them updated.

Engaging with finance providers is also essential. They have indicated a willingness to work with businesses through this global shock. Rescheduling repayments would be important. For some firms it may be necessary to take on some additional debt to deal with temporary working capital issues, but this additional debt is not a substitute for cutting costs.

For other firms additional debt might impact negatively on the solvency of the business, and should only be considered where it will facilitate additional income streams and create its own repayment capacity in due course.

On the supply side, it is very difficult for finance providers to pick the winners and survivors from this crisis. Small firms, by their very size, are more at risk. Younger firms are also at risk as they have fewer resources, less experience, weaker social ties, and fewer ties with customers.

The recent rationalisation of the bank branch network and the move away from relationship banking has not helped. Ironically, never before did we need the local branch manager who understood the local business and their owners. Hence, robust business plans are more important than ever.

Planning ahead

The last government also recognised the importance of planning ahead, and a number of government agencies are providing a range of financial supports for firms.

The local enterprise offices are providing a Business Continuity Voucher for businesses across every sector that employ up to 50 people.

Likewise, Enterprise Ireland is also providing a number of measures, including a business financial planning grant to the value of €5,000, a new €2,500 Lean business continuity voucher to help companies access expertise in reviewing and optimising operations, and a €2 million Covid-19 online retail scheme will soon come online to help retailers to develop a more competitive online offer.

The Strategic Banking Corporation of Ireland has also launched a Covid-19 working capital scheme which will make loans of between €25,000 and €1.5 million available through the main banks for working capital requirements and/or to fund business innovations to mitigate the impact of coronavirus.

Businesses in Northern Ireland can also find advice on the wide range of supports available to them at www.nibusinessinfo.co.uk

Key advice is to get good advice, sooner rather than later, carefully manage cost, consider how your business could work within the restrictions, consider how technology may help, continue to communicate with employees and customers and fully explore and avail of the relevant government supports.

If there is one thing businesses learned from the last crisis it is that this is not the time to bury your head in the sand. There are supports there to help and experts to talk to. Working through this crisis is much better that having all the different scenarios whirl around in your head.

Dr Eimear McGeown is a lecturer in the department of accounting and finance at University College Cork, where she specialises in financial accounting.