Keep talking….to your funders and plan, plan and plan again

Keep talking….to your funders and plan, plan and plan again

The economic impact for many businesses however is an unknown entity, albeit this morning a number of businesses put out profit warnings to the market. We are entering a period where there is no real precedent for what happens next.  With many promising, as much as they can, for the status quo to be ‘business as usual’, contingency planning has never been more essential.

If you haven’t done so already, the single most important recommendation is to develop your contingency plan and make sure you share this, as early as possible, with your funders. Make sure your plan includes impact analysis of a number of scenarios, rather than trying to be too exact about the details, which are currently unknown. We are increasingly seeing the same message coming from both borrowers and lenders – things are uncertain but it’s imperative to keep in touch.

So what do you need to think about and be prepared for?

Working capital

What would the implications be on your cash flow if you need to invest in additional stock to protect against a shortage of supply? If your debtors take an extra five days to pay because their cash flow has tightened, what will happen to your overdraft? The Chancellor announced a raft of new measures yesterday to help businesses – do read these and consider if any are applicable to your business.

Your employees

As the virus spreads and more people are beginning to stay at home and self-isolate, will your business manage if a number of your employees are either unwell or go into self-isolation? New regulations that came into force on 13 March state that employees with symptoms of coronavirus, who self-isolate in accordance with published guidance, are now entitled to claim statutory sick pay. Although it looks likely that the government will refund these payments, the time lag before reimbursement could be significant. What impact could this have on your cash flow, especially if you also need to recruit temporary employees to cover absence?

As the coronavirus spreads throughout the UK, it’s likely that some of your employees will want to, or need to, work from home. If this isn’t usual practice within your company, you may have to provide them with suitable IT equipment, such as laptops and mobile phones, to enable them to work outside of the office and keep your business running. This is likely to have an impact on cash flow as funding the purchase of this additional equipment kicks in.

Funding agreements

If you are working with various banking covenants that attach to your funding agreements, is there any danger of an unintended consequence causing a breach? For example, some finance agreements will sometimes contain a ‘clean down’ condition requiring you to keep your account in credit for so many days each month. If cash flow tightens, you may find yourself in a situation where achieving this may be difficult.

Other covenants may be around leverage and your debt servicing ability. If you expect your profits to be impacted, is this going to trigger a breach of this type of borrowing condition?

There may be other issues in terms of ‘certain funds’, conditions subsequent and general reporting requirements which may also not be met.

In all cases, the message from lenders is clear – pick up the phone and speak to them as quickly as you can.

Act fast. Preparation is key

It pays to be prepared and, of course, banks will want to be seen to be helpful. Whilst this situation is unprecedented, it will not last forever. Last week, UK banks came out with a list of emergency measures, including suspending loan repayments and fee free emergency loans to help businesses overcome some of the current challenges they’re facing.  Various lenders have already announced the availability of fee free loans for businesses that are hit by the coronavirus outbreak and it’s likely others will follow.

Banks hate surprises and they won’t know what you don’t tell them. Make contact with your funders at the earliest opportunity and don’t be afraid to tell them exactly how it is. They will be having many similar conversations with other businesses, so you are not alone.

Be reactive

Plan and plan again and when your circumstances change, change your plan. Don’t fall victim of the ‘ostrich approach’ and bury your head in the sand. Set up groups of employees to talk through and share your thought process – It’s well-known that a business’ leadership team doesn’t have a monopoly on good ideas!

Once you’ve made your contingency plans, share them with your bank and keep them informed as your situation changes so they can then work with you to support you where they can.

If you require any advice around your business options, funding arrangements, employee issues or any other challenges, contact Chris von Strandmann or another member of your local banking team.

For general business advice, you can visit our dedicated coronavirus resource hub or sign up to one of our latest webinars that covers ‘the impact of coronavirus on your business.

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