The outbreak of COVID-19 poses not only a serious threat to the health of the UK, but also to the life of many businesses. Joe Greenstock of Hewitsons offers some advice...
COVID-19: Business survival tactics
Current measures have resulted in a sharp downturn in activity for many sectors, with countless organisations left seeking guidance through this difficult time.
Chancellor Rishi Sunak has introduced an unprecedented £350bn business support package, including measures such as loan arrangements and grant funding for SMEs. Despite this however, many feel that the provisions will prove insufficient and the Corporate Finance Network has warned that almost a fifth of small businesses are at risk of collapse in the short term.
At this unprecedented time, there are some practical steps which businesses should consider taking to strengthen their chances of survival. Firstly, and most obviously, any help on offer from the government should be reviewed and taken where on offer. In addition, businesses should consider the following:
Limit additional costs - organisations may wish to freeze the payment of any discretionary payroll costs such as employee bonuses, as well as putting a temporary stop on pay rises, promotions and external recruitment. If applicable, a business may also opt to limit any extra shifts or overtime which are usually available to staff in addition to their contracted hours, particularly where demand is significantly reduced. To keep staff incentivised the company could consider granting options such as EMI share options as current low share valuations could be beneficial.
Consult employees – some will be willing to help their employer in its hour of need and may agree to temporarily reduced hours or a pay cut. They may also be willing to take a period of unpaid leave to help with cash flow or to use a proportion of their annual leave entitlement. Alternatively, a business could make use of the government’s furlough scheme, lay-off some of its staff or even make some redundant, but should be mindful not to cut too deep and should ensure the retention of those necessary to continue the business.
Diversify – rather than dismissing staff, either temporarily or permanently, a business may seek to re-deploy staff in quiet departments to assist in those which might still be continuing or even thriving in the current situation.
Remote working – if a business has employees working remotely, it should ensure they are properly set up and fully equipped to do so. Communication should be increased in order to maintain the same levels of productivity as would be achieved in an office environment. Security should also be considered, particularly if staff are allowed to use their own laptops or other devices.
Sales and marketing – businesses should take a pragmatic approach and pause marketing of projects which are likely to be halted by the pandemic. That time and money saved could instead be invested in social media marketing or in materials which target any problems currently encountered as a result of COVID-19, which could provide invaluable additional sources of revenue.
Check contracts – businesses should ensure their terms and conditions and contractual provisions do not leave them exposed by way of expensive termination clauses, should they need to take such steps.
Re-think pricing and rates – a business may want to re-think its pricing models and may wish to contemplate offering particularly attractive deals for upfront payments to maintain cash flow.
Use of resources – if necessary, a business may want to delve into its reserves or other resources to help ride the storm. If it can demonstrate long-term financial stability then, in addition to the government’s COVID-19 loan arrangements, it may also be able to open or extend overdraft facilities.
Cash-flow budgeting – this should account for fixed costs versus variable costs and should include a list of priorities detailing those commitments which are most important or imminently due, and those which could be delayed where necessary. Where tax such as VAT can be deferred without penalty this should be considered.
Lease negotiations – as rent is generally a major expense, a business may try and negotiate with their landlord for rent holidays or reductions, or amended rent schedules for a limited period, in order to free up some much-needed cash. Landlords themselves may be able to apply for a mortgage holiday to ensure their own cost is minimised. Anything which is agreed should be properly documented for certainty.
Contact suppliers – businesses will have outstanding accounts with suppliers and if there is a strong working relationship, it could be worth negotiating with them and requesting delayed payment terms to try and keep the organisation afloat.
Collect outstanding debts – on the other hand, the same business may be asked to extend credit itself. Businesses should therefore chase any outstanding amounts and if necessary, may wish to strike a deal with the debtor to ensure payment, even if at a discount or on extended terms. If you need to write off debts then this could create losses to off-set against trading profits and reduce the tax bill.
Some steps are simply short-term firefighting, but others point towards adopting a more long-term diversification of the business. Adaptability will be one of the key attributes of a business that manages to navigate the storm. The pandemic may have limited an organisation’s ordinary course of business, but there are possibly other avenues which could be explored, as either a temporary or long-term solution. For example, retail businesses may look at this as a perfect time to increase or develop their e-commerce presence.
if a business manages to turn the tide of COVID-19, it should consider further initiatives to help ensure that its recovery is as strong as possible –
Learn from it – new revenue streams developed in the midst of the pandemic could be embraced and become hugely beneficial in the long term, such as having an increased online presence. Additionally, some businesses may opt to stick with remote working, which could allow them to occupy smaller, inexpensive business premises and to adopt a ‘hot-desk’ culture.
Don’t cut back too far – as discussed above, retention of an organisation’s crucial staff is key. Early positive signs from China suggest that the recovery of its virus-torn economy could be quicker than anticipated. Businesses need to ensure they are prepared to hit the ground running if this proves to be the case in the UK.
Plan the recovery – a sense of normality will eventually resume, but there remains debate about when this will be. Businesses should plan for each eventuality, namely a slow return to previous market conditions, a quicker return, or a more unstable, staggered return, with possible intermittent social lockdowns. A well-prepared business will avoid playing catch-up and can instead focus on long-term performance and productivity.
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