Tuesday, 31 March 2020

Many companies are facing unprecedented challenges from the impact of the COVID-19 virus.  It is difficult to put a timeline on just how long the pandemic will last, but the negative ramifications will be felt far and wide for many months. Any actions taken today will prepare businesses to not only survive the current crisis but thrive thereafter.

Many companies are facing unprecedented challenges, with the COVID-19 virus rattling confidence, disrupting business investment, spooking markets, closing businesses, restricting population movement and threatening supply chains. Hundreds of thousands of Australians have lost their jobs already, as pubs, cafes, restaurants and venues have been forced to shut their doors. 

It is difficult to put a timeline on just how long the pandemic will last, but the negative ramifications will doubtless be felt far and wide for many months after the virus subsides. We are facing extraordinary challenges, a once-in-a-century event, and while we should hope for the best, we should also plan for the worst.

Markets and businesses thrive on stability, and the vacuum created by uncertainty is often quickly filled with panic. There is widespread talk of a recession, a potential depression, and a business environment far weaker than during the global financial crisis.

Now, more than ever, the business community needs clear, methodical and experienced advice to guide leaders through rough waters. With this in mind, we have created a roadmap to help businesses re-strategise their approach, with a fresh focus on cash flow, core business, and expenditure.

1.    Formalise your team

At KordaMentha, we have a dedicated COVID-19 response group that monitors the ever-evolving pandemic, and responds accordingly. We recommend formalising a crisis management team to meet daily to effectively enact your COVID-19 response plans. Executives may wish to broaden their focus, extending the responsibilities of the c-suite across all managerial lines for a more comprehensive approach.

Start by thoroughly investigating your exposure levels. How will your sector be impacted and what are the points of weakness within your business? It’s important to critically analyse the business for these pain points before wide-reaching commercial decisions are made. Ask yourself: What are the legal implications of the current economic climate? What Government assistance is available now and into the future? How will you adjust and allow for this?

2. Analyse supply chains and stakeholders

There is a high degree of likelihood that supply chains of industries heavily dependent on international trade will be disrupted and you will need to mitigate these disturbances. 

Stakeholders or clients may have trouble paying for goods and services in an expedient manner so it would be helpful to consider the fiscal position of your clients, suppliers or customers. Keep the lines of communication open so you are well informed of clients’ and suppliers’ trading conditions and how their performance tracks, as this will impact you directly. We are likely to see a swift move to ‘cash-on-delivery’ by all market participants as companies are cash flow constrained and cannot risk providing credit.

Reach out to key financing partners, too, to understand your potential immediate borrowing capacity, what facilities are available and what leniency can be offered. 

Business owners in the hard-hit hospitality sector should open up a dialogue with landlords to discuss rent holidays, rent abatement or a totally new arrangement like potentially taking a stake in the business in return for a rent reprieve when trading resumes. The current COVID-19 environment has the potential to forever re-set the landlord-tenant relationship. It’s important, too, for closed businesses to think about how they will trade once they are allowed to re-open. Perhaps third-party supplier agreements need to be re-assessed? Maybe employees can initially return on a four-day-week roster to keep costs down? 

If your business is directly impacted by the social distancing requirements, you may consider other ways of delivering your products or at least staying relevant to your customers. Zero Contact Home Delivery, for example, is now in place for all online home delivery orders, under the direction of Australia Post. 

Even during the most challenging of economic circumstances, there are ways to adapt and evolve, and most importantly, to plan for business conditions beyond the slow down.

3.   Priority cash flow culture

Cash flow is a fundamental driver for all businesses, but now it has become even more crucial. Preservation of cash is essential to buy time to be able to navigate the current uncertain environment. It must be the No.1 daily priority for all business owners, manager and directors.

No doubt, the current trading environment will cause you to press pause on a number of capital investments and plans where possible. You are likely to consider what capital investments are crucial and optional, the projects that can be delayed, and those that can wait until normal trading conditions resume. Management needs to strike a balance between pulling back on non-essential capital expenditure, while keeping an eye on future investments for when conditions improve.

Buying time is another important strategy, and, if necessary, businesses should talk to their creditors and suppliers to seek consent to defer payments. This, of course, goes both ways. If a crucial supplier is struggling with cash flow, you may also choose to accelerate payments to ensure a smooth operating environment for the both of you. This will not be easy in such trying times, but, as always, communication is the key.

4.    Communicate transparently

Just as you will be monitoring the operating environment of suppliers and clients, your external stakeholders will also be gauging the health of your business. Be prepared to share details of your COVID-19 plan and changes you are executing to ensure liquidity and continued confidence.

A changing work environment also translates to a changing workspace for employees, and this can be a disruptive experience for staff if not handled sensitively. 

Ensure staff are informed of major developments and new strategies as this will foster a keen sense of co-operation and propriety in the business.

We are living in a rapidly changing business environment, and this will require an even greater level of corporate agility and adaptability than ever before, but if we continue to communicate with stakeholders, we can provide a degree of much-needed certainty and consistency.

Where to from here?

The COVID-19 crisis has disrupted many aspects of the economy, our society, and our daily lives. 

Times of crisis, however, can often reveal weak points within companies, highlighting the problems that have hitherto gone undetected. 

In this respect, businesses have significant opportunities to strengthen their resolve and improve their competitive position during the COVID-19 pandemic. Having adapted and evolved to survive the crisis, many companies will re-emerge leaner, more efficient, and more resilient than ever; in a position to thrive into the future.

We are confident that with a calm and methodical approach and a laser like focus on cash flow, businesses can overcome the significant challenges we face over the coming months. It will not be easy, but with strong leadership, it is possible.

If you are after more detailed restructuring, financial or recapitalisation advice, we are here to help. Feel free to contact us.

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