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How to keep your business' wheels turning amid the coronavirus chaos

20/03/2020

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United Kingdom

Government guidance has so far been vague on how to tackle the difficulties faced by small companies who have seen most of their income vanish almost overnight. Here, our restructuring experts suggest some practical steps for companies struggling with cash flow.
 
The measures the UK government is taking to contain the coronavirus (COVID-19) outbreak are having a devastating impact on small and medium-sized businesses. 
 
Although the government has made numerous commitments to assist businesses, including access to state-backed loans, rent holidays and potentially wages support, these may not be sufficient to save all those affected.
 
What has so far been lacking from government is practical guidance on what businesses should be doing now to minimise the impact of the disruption and protect themselves against the worst outcomes.
 
What can companies do now?
 
  • Plan
As the situation continues to escalate rapidly, it is advisable to put a plan in place as soon as possible.
 
This should involve putting together a short-term weekly cash flow forecast covering a 13-week period, particularly as official guidance is that coronavirus-related disruption is likely to last for at least the next three months. 
 
Businesses should also identify their critical receipts and outgoings, and cut any discretionary spending where possible.
 
The last week of March will be a crucial period as it includes a traditional rent quarter day (25 March) as well as other recurring month-end costs.
 
It may also be possible to mothball or sell some non-core assets/business units, although selling may prove challenging in the current climate.

 
  • Create a committee
A steering group of senior operations staff should be mobilised to manage the impact of the virus, and associated political measures, on the business.

 
  • Speak to staff 
Managers and their HR professionals should consult with staff and discuss temporary or permanent payroll reductions, or changes to working practices to help ease the pressure on cash flow.
 
It is important to be honest and seek input from colleagues, but taking advice from an employment law specialist before having those conversations is useful in making difficult decisions for the company and its employees and ensuring the correct procedures are followed.
 
For more information on employers' obligations and rights, please see our coronavirus employment law hub.

 
  • Speak to customers
It is wise to reassure your customer base and consider how you might be able to continue providing services to them, and let them know how you plan to do that by preparing and distributing a business continuity statement.
 
Where appropriate, seek customers’ consent to hold onto deposits or advance payments for postponed services or goods deliveries.

 
  • Check contracts
Businesses need to look at what their contracts say in terms of force majeure clauses and insurance provisions.
 
It is worth bearing in mind that force majeure clauses are not designed to deal decisively with situations like that created by the coronavirus pandemic, but rather to invite potentially protracted discussion/argument about whether, in fact, a force majeure event has arisen.
 
From this perspective, it may be more helpful to explore what other options your contracts and relationships will allow for to deal with the situation.
 
On insurance, notwithstanding that insurance policies with a 'Notifiable Disease Extension' are unlikely to cover losses caused by coronavirus, as these extensions are limited to known diseases, it is best to ascertain your level of cover early on, rather than proceed on the assumption that losses will be reimbursed.
 
More information on alternatives to force majeure is available here.

 
  • Request flexibility on payments
It may be necessary to speak to creditors and renegotiate payment terms, but businesses should not be too hasty in taking this step and should consider all of the above recommendations first.
 
Where creditor conversations are warranted, companies can approach lenders for support on existing facilities and explore what other options may be available.
 
Where rent is due, under the current circumstances, businesses should not be afraid to discuss rent deferrals or adjusted payment terms with landlords.
 
Businesses can also seek to extend supplier payment terms if necessary and contact HMRC and other government departments about Time to Pay arrangements and the additional support packages announced by the Treasury.
 
While all of the above are sensible and potentially inevitable steps for struggling businesses, it is important to bear in mind that opening or agreeing to such negotiations may have a detrimental impact on financial covenants, so it is best to seek advice before embarking on these discussions.

 
  • Seek professional assistance
Although the situation continues to change, as things stand, the best recommendation for companies facing financial difficulties is to seek timely professional advice.
 
While the suggestion paying for assistance at a time of rapidly dwindling cash reserves will likely be unpalatable to many, receiving astute, expert guidance early on can help businesses save money further down the line.
 
For more information on the legal implications of coronavirus on everything from privacy, to pensions to commercial tenancy agreements and much more, please visit Fieldfisher's dedicated coronavirus hub page.
 
 

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