The pandemic and its economic fallout has put huge pressures on many businesses, with some battling to stay afloat.
Here Paul Slevin, a Cardiff-based director with Quantuma Advisory, outline seven practical steps businesses should take to help them navigate through the current challenges and being able to maximise the upside from a post-pandemic recovery.
Knowledge is key
Have monthly reports on thing likes turnover, costs and cash.
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Do not rely on bank balance management. Develop simple profit and lost and balance sheets and if in doubt seek help from your accountant.
All too often we see directors and business owners who look at their order book, consider what the potential orders might be, check the bank account and assume that they are in control.
This method may work for some and may have been a quick pointer in the past, but the waters are stormier now. This does not recognise additional costs, loan repayments, unpaid debt, delayed lease or mortgage payments etc.
Cashflows
Have a cashflow forecast that covers the short and medium term. At this stage you should be looking at Q1, 2021, at the minimum.
Sensitise this to see at what level of sales or costs does cash become tight.
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In these times this is probably the most valuable instrument in any business.
Failure to have one of these leaves the business and the directors in a more challenging position. Make sure there is a robust and honest cash flow forecast in place that runs out well beyond the end of the year so that it covers the period of the end of transition.
Purely completing this task will force a director to look at and understand where all the revenue and cost opportunities are and gives a clear picture of what cash will be available at any time.
Remember it is just a forecast and this changes so it should be updated monthly and preferably weekly. Knowing when a business might run out of cash or cash becomes tight is not the end of the world – actions can be taken to address these short-term challenges.
What is more challenging is to run out of cash and not even know it was happening.
Supply chains
Make an assessment of supply chain resilience — check to see if your supply chain still works to the same levels and costings. Look at the political/pandemic scene across the world and see if it impacts. Don’t assume that just because you buy it in the 海角视频 that the exit from the EU won’t affect you.
If it is sourced in the 海角视频 where does that supplier get their raw materials or labour from?
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Both the pandemic and Brexit has and will have an impact on supply chains. That impact at worst is failure due to a supplier or a supplier’s supplier failing and therefore causing an interruption. Additionally the impact may be volume.
Failures in your supply chain may draw volume to others therefore jeopardising a company’s ability to meet orders. And finally, others are feeling the additional costs of doing business due to reduced volumes, social distancing etc.
A companies material costs may rise as a result of an increase goods in price. Brexit could impose tariffs and delays which at this stage are unknown but will kick in on January 1st.
Your markets and Brexit
In terms of Brexit, although we still await whether the 海角视频 will strike a free trade deal with the EU or have to operate on WTO rules, you need to think about being able to trade to those markets.
Also has Covid changed the nature of your market - does the same demand exist? Have any of your customers been adversely affected by Covid?
How will companies export, will there be delays, are there additional costs, what are the impacts on my work force, what if goods are delayed coming into Britain?
The questions are endless and some or all will apply to any given company. We have not yet found a company that will not be affected by Brexit so careful consideration needs to be made of the impact, how to mitigate it and the costs involved.
Landlords
Develop strong relationships with your landlord, lender, HMRC and other major creditors — work with them not in isolation.
Most lenders and creditors are supportive of businesses that face challenging times.
We need to keep in mind that they too are part of the supply chain and operate as part of a wider network, so it is not in anyone’s interests to make unreasonable demands on a business that may force it into difficulty.
And it is likely that they won’t as long as directors in businesses that may be challenged have behaved openly, developed an honest rapport and relationship and have worked with the creditor to solve the problem.
It is accepted that some may be more challenging but again there are professionals who can help. While emergency legislation on landlord forbearance has been extended until the end of March, 2021, act now now before it is too late.
Realism
While you cannot see around the corner and forecasting is difficult but realistic not just optimistic.
Sensitise your forecasts to what you have learnt from the market and potential down/up turns. Be practical. Don’t be over optimistic. In times of financial uncertainty aggressive budgets are additionally risky. Be pragmatic and then look at the worst case.
Make sure you test the budget so that you are sure that it works. Make sure you look at the worst case so you know the signs to look for and what issues you may have to deal with if you get to that point.
Clarity
If in doubt, then ask. Firms like ours are here to help and we are happy to talk you through what to do and what to look for. Talk to your accountant, your lawyer. Seek help.
Professional firms actually do want to help, they want companies to survive and grow. We are not ‘undertakers’. We are allies and supports. You do not need to be in deep difficulty to justify a conversation. Have that conversation even if you just want to clarify a point or test your thinking.
- Paul Slevin is also president of South Wales Chamber of Commerce.