Business Restructuring, Recovery and Continuity
The COVID-19 crisis has proven to business owners that even the most rock-solid industry is not immune to economic impacts. What are the steps that you need to take as a business owner to ensure that you’re prepared for the worst-case scenario?
Understand options and current market conditions
Before generals marshal the troops, they gather intelligence. As a business owner, you need to understand what resources you have at your disposal. You need to take a realistic look at your business finances and situation and plan accordingly.
The first area to examine is your cash flow and how it might be affected. What outstanding debts do you have, which clients might be affected and what credits are still owing? If a client failed to pay, which would have the most significant impact?
Questions to ask are:
● What is the firm’s current cash flow?
● How much liquidity do you have? How much do you have in savings if you need to stop work?
● What is due to be paid from clients?
● What is the state of their business? Look for signs of possible insolvency (for example, if any of your clients were aviation or tourism-focused).
● What lines of credit are available for your firm?
● What government benefits are available (such as JobKeeper or industry-related stimulus packages)?
Secondly, examine how you can stabilise the business and reduce liabilities if needed. If cash flow stopped tomorrow, how can you ensure continuance of business? What assets can be furloughed or postponed if required? Who do you need to contact?
Questions to ask:
● What liabilities does the firm have?
● What assets might be secured by creditors if we are unable to pay?
● What assets can be returned, furloughed, or delayed?
The third stage is often forgotten but is considered the most important; what is your recovery strategy and continuity of business into the future? Say you have to execute the two plans above, how will you return to regular activity when the market improves. If you have outgoings, how will you resume payments and when?
Questions to ask:
● When is the firm expected to return to business as usual?
● Is there anything stopping you from trading as normal (government mandate or international restrictions, for example)?
● Which stakeholders need to be informed and communicated with?
● Which clients are the priority to communicate with and keep happy?
Lastly, ensure that for every option above, you have a contingency and backup plan. Not everything will go right, and you need to prepare for it.
● What risks do you need to manage?
● Which plan is the most likely to go wrong?
● Develop a practical insolvency plan. You need to know what your exit strategy is if conditions don’t improve and what that involves.
The last point may be the most painful for a business owner, but it is the most important. Once you understand what is involved, what your options are and how it can affect you personally, you can move forward confidently.
Be sure to check out other topics that answer these very questions on our blog, such as how employee redundancy works (and what you are entitled to) and how to manage the insolvency process best.
If you believe your business is operating insolvent or is headed towards insolvency, be sure to contact us to understand the situation more and take proactive steps.