Hi, I'm Michael Mulligan a Partner in the restructuring and insolvency team here at Shakespeare Martineau and welcome to today's webinar onpreparing for the recession.
All of this week. We're hosting a series of special virtual events to Mark 50 days since UK officially went into lock down those blogs and webinars are designed to help businesses plan ahead to The New Normal. You'll see a Q&A icon on your screen.
So please do ask questions on will share a summary of all questions and answer that everyone after the webinar the government lock time and the effect upon individuals and businesses has been far-reaching the bank of England has forecast that the coronavirus crisis will push the UK economy into its deeper recession more than Years without plunging on with 30 percent in the first half of this year and GDP Contracting by 14% the center for economics and business research has just conducted a survey which find out one in Tempest is say there is a high risk. They were entrance on see as a result of the coronavirus crisis.
This equates to more than half a million businesses that have been pushed to the brink the majority of businesses say and that's 51 percent that there's at least a small risk at will go insolvent do the crisis it quitting to nearly 3 million businesses across the UK, which is an astonishing number. The next month is absolutely crucial. It seems with more than a quarter of a million businesses say that will not be able to survive its trading conditions remain as they are for another month insults.
The industry is preparing itself for a very busy period These economic forecasts come as a government has unveiled its imprecise plans for a very limited easing of lockdown in the coming weeks. Any return to the eventual normal will be gradual and slow which brings a limited economic upside in the short term. There are two reasons for this firstly as long as the fear of contagion as their consumers won't rush to spend their money. Secondly people simply won't have the appetite or means to spend money or non essentials and we'll try and see if whenever they can.
Health considerations will prevail for many months over a business and the economy the UK government doesn't really have a choice a mistake on the health front leading to a second or even third spike in coronavirus cases and deaths could bring economic disaster and potentia depression.
The lockdown easing as envisaged by the government can bring a quick economic boost and truth be told not one of the leading economists can yet constantly predict what sort of a recession were facing the Fiat you s*** Battleship or worse in previous webinars. My colleagues are covered to range of financial measures with UK government has brought in to help businesses in the short term. We have also discussed the list of changes proposed to the current and salty raging again designed to give breathing space to business during this very difficult time.
We'll update you once and reforms enacted the corporate and songs in Governor's bill is due to begin its emergency passes through Parliament in the coming days.
In this presentation, I'm going to focus on 10 things you can do to prepare your business for the recession. These are actions which would help your business regardless of how the economy is doing but it also protects your company when this recession bites importantly you'll be better prepared to take advantage of any opportunities that emerged during or after the recession.
Before I start I just want to make a few important preliminary observations firstly some lessons were learned from the financial crisis in 2008. However, the UK economy was fragile, even before the outbreak of coronavirus GDP field to grow in the final quarter of last year and idled Rose this just 1.4% The the financial sector is better regulated and in 2008. The UK is in most respects worst prepared to last time.
However, the UK economy Will Survive the coronavirus I Brig notwithstanding its per state of health before this crisis, but it was mainly due to the impact on brexit, but this is not a normal recession and there's no real comparison historically if we treat this like a normal recession it could cause lasting damage to the economy and make it even harder to beat the virus before isolation measure land in a normal recession the government would not generally be light feeling businesses. Also the traditional stimulus.
Cease to get the economy moving and recession are at odds with the government's policy of us working from home avoiding pubs cafes restaurants and other economic activity. We must remember that consumer spending represents 80% of the UK economy. Also coronavirus doesn't discriminate. It doesn't care if you're a big profitable solvent business or not. There is no reason to believe that business which are profitable in normal times will be able to beat this recession any more than small business with tight margins.
In fact, the opposite may be true big productive businesses have higher overheads and maybe hit worse than businesses with lower turnovers and lower overheads. This is not a normal recession. It's a biological disaster and an economic meltdown, but it will be temporary and you can help your business to ride the storm. We can't all be like Walt Disney. So there are many things you can do to help your business through the recession. I've chosen just 10 for this short presentation.
Titian firstly keep your finances up to date. This is the key to most businesses regularly monitor review and update your financial records management of clients and cash flow projections. This will help you and your Landers understand the Financial Health of your business and identify when and if insolvent liquidation is unavoidable. There's a number of elements to this firstly focus on cash.
Cash flow is absolutely key to the survival and success of any business and in a recession is likely to get stretched.
Make sure you have enough money available to see you through a slow period if you feel that when useful to have increased Finance facilities talk to your bank about it sooner rather than later what and maybe much more urgent after you get on top of your cash flow forecast.
You can and focus on securing whatever it's and I should support your business might need from shareholders customers suppliers creditors lenders landlords and the government but make sure you fully understand what you're ticking on before boring any any including government-backed loans and always take professional advice if you're unsure as to whether your business will be in a position to repay any new debt manager debtors carefully the first thing that happens when recessions here is that businesses start to pay more slowly conversely those business also start asking the clients to pay sooner ultimately this affect your cash flow always bear in mind that you can have a profitable business but with / cash flow and limited cash reserves.
If so, The chances are your business will not survive the recession a higher number of business are going to feel during recession that's obvious. And you want to make sure Europe egg before any of your debtors run into financial difficulties themselves. So you must check will have any debtors need kissing up sooner rather. Listen slow payments will sneak up in your company unless you have a solid system in place to collect slooping receivables.
This is key to your cash flow and also gives you an idea of your clients Financial Health another reason for having a good invoicing a collection system is to keep a check on well, there are certain industry is heading for lean times. If a number of your clients change their payment terms, that's a good indicator skill by your credit terms to new and existing customers. If you're asked to extend your usual 30 days terms the clients will say 40 50 or 60 days. Make sure to check their credit report before offering them more time to pay only offer extend the terms of those customers with decent credit and to Europe.
And others on time while some businesses are struggling GCI Greg of coronavirus other business, maybe less impacted or indeed find the business is booming. It's therefore important to understand the nature of your debtors customers or clients businesses and perhaps concentrate on income from those organizations who may have greater access to funds and he's very trying times. I do client is a paying client try and pay your suppliers on longer terms if possible 40 50 or 60 day terms.
Your clients be trying to do as I've said, obviously the best plan to get payment terms agreed this when everything's going well for everyone when recession hits you then of a precedent. She suppliers will try and change those agreed terms.
If you've always paid on time for fear of losing you as a client beside business operates and during this crisis, we're certainly seeing more businesses trying to help each other in 2008 in contrast everyone graduate we could Pinterest for each of your key suppliers have an alternative on standby just in case of a straw for your Market become too expensive or go bust always check your insurance policies you may have access to business Interruption cover for example, staff sickness and offers absences could also be covered by key man Insurance. You've got to work out when and heightened notify your insurance provider or broker of any claims. Thirdly have regular board meetings this crisis.
It is evolving constantly. You must ensure that you have regular meetings with your fellow directors discuss the company's financial information and crucially document any decisions, which you make, you know, your business better than anyone and the factors involved in reaching your decisions. You must document prior decisions were best for the business. Be careful about you cost business owners. Invariably don't watch new cost you carefully during the good times.
Why bother if you have plenty of cash Problems at new expenses can add up quickly and by the time of recession hits its them too late to make changes.
The golden rule is don't buy text something unless your business really needs it be wary of taking on new staff or a new three-year vehicle these for example Look at your existing costs and eliminate unnecessary expenses. Leave. No stone unturned. I saw it's not essential business functions as when recessions hit. Those are the easiest to trim what could be isolated will vary of course from business to business. However, be careful about Outsourcing important strategic or operational functions. Those are usually best left in Heist Reveal Your overheads for any that you could scale back often. You'll have to wait several months before you can make a positive difference to your monthly.
Hello, my name is your stock carefully nothing kills a business sooner than a warehouse full of slow moving inventory. Especially premium lines that's cache line in your floor. You implement stock Runners with and tracking system early on you may be able to identify stock that could be easy to sell my rather than six months. You'll operate more effectively and avoid wasting cash try to diversify your client base and products or Services. Your existing client base is of course your best source of income.
Um, so invest time keeping them happy. However, one of the biggest mistakes is to concentrate your revenues and only a few clients. It's ineffable in a recession that one or more of these clients will leave start to become a bad pair or go out of business. You can fix this by diversifying your client this to soften the blow also look at your range of products or Services. Could you diversify into any areas less vulnerable to recession? Can you offer lower priced options?
Littlest is diversifying your marketing channels and client sources. Otherwise, you're at the mercy of a single source of clients and that can be hard to fix when a recession bites.
Regular interaction with key stakeholders is vital will not be landlords or other creditors customers and suppliers or hmrc. It's important to seek to negotiate terms with suppliers. Many of them will be facing the same situation as your business. It's all about working together to meet the challenges of adapting to this new working environment. Of course each Marcy can be the most challenging of those stakeholders to a struggling business and any concessions by available in the form of v80 deferral.
Time to pay will no doubt be closely monitored against the risk of potential abuse.
Talking with your stakeholders may also throw up a competitor. He is struggling assigns a little bit. Hawkish, but there may be a lot of business you can pick up if one of them feels there's always opportunities in recession if your own business is financially strong begin to employees employees are key to your business transparency and empathy never go out of fashion and build trust for when you exit the session hopefully stronger in the long term. That was one very important lesson.
for the 2008 crisis Lastly I would say this tick professional advice. It's so important to seek professional advice and solicitors accountants and assaulted practitioners at an early stage to help better understand your business financial position and how close you are to unavoidable insolvency.
Advisors can also help you understand what you should and shouldn't do in respect of business decisions professionals can help you recognize the warning signs of insolvency understand while your situation is one that you can trade off and help you to understand the various types of resources, which may be I'm there to help you such as government grants binds back loans or symbols.
Advisors may also be able to help you negotiate payment Holdings if appropriate with your key stakeholders in summary Financial strength is vital to well during recession which means cash in reserve and a strong Capital position those business that plan to the long term and are flexible on more likely to weather the economic storms ahead. These are unparalleled times really difficult. We don't know when some kind of normal life will return and we don't have any idea when the UK economy.
We will recover but it will having made such huge changes to working operating practices. They'll be astonishing of real returns are always working. We've learned so much in the last couple of months and will no doubt learn more lessons in the weeks ahead. What you can do for your business employees know is to prepare for the worst and take professional advice the shoot of course minimize any risk in a fierce as a director on potentially insolvent company.
We look forward to working with you as you deal with the challenges and opportunities ahead that brings us to the end of this webinar. Hope you find it useful and relevant in the current trying circumstances. If there's something you'd like information on or have a specific query you would like to discuss. Please do let me know and I'll be happy to help finally.
We've launched a free helpline giving you direct access to Senior Team of experts for free legal advice over 20 minute video call details are on the screen now if you'd like to book a session Thanks very much for listening and take care.