10 Apr, 2020

COVID-19: Basic Risk Management steps for your business

Categories: Uncategorized
man on red watercraft

As we witness the global economy plunging into what could easily become one of the deepest recessions in modern times, there is no accurate economic model to compare with that is currently unfolding. The unprecedented challenges brought upon us by the COVID-19 are having a profound effect, equally on our global community and on our global economy, with expected further decline during the probable second wave of the contagion later this year. The questions every business owner is asking – how to stay afloat during and in the aftermath of COVID-19 pandemic, how to prepare for the future, where should I invest to save my business? First and foremost, you must stay up-to-date with all the developments of the pandemic. Staying informed will enable you to assess the direct and indirect consequences of the pandemic and how they might affect your business.

Strategize

Though the pandemic is showing signs of slowing down in our region, it is highly unlikely that we will go back to our old ways in the next couple of months. Get accustomed to the current situation and start working on your strategy – acknowledge your options and invest your time in researching new markets and diversification of your products and services. Technology and innovation are more important now than ever before – in case you haven’t already, find ways not only to promote but also to conduct your business online, in compliance with the social distancing measures.

Working capital requirements

Analyze your working capital requirements and liquidity of your business. Prepare yourself for both best- and worst-case scenario.

Communicate with your existing client base to make sure you understand their concerns and, more importantly, their current situation. Remember, your clients’ circumstances will affect your business.

Cash inflows

Calculate your actual and expected cash inflow.

Conduct a thorough research on the governmental schemes put in place to support businesses during the COVID-19 pandemic, e.g. business suspension & support plans, delayed tax payment deadlines for individuals and corporations, and whether you and your business are eligible to benefit from the economic measures programme. Consider whether an alternative way of financing can be obtained, e.g. issuing of new capital or securing a debt facility.

Above all, at this stage all organizations should have their Financial Statements in order because they will be called upon to submit them in any finance raising route they choose.

Make an effort to secure the receivables due to your business as promptly as you can, having in mind that some of your clients will face difficulties in repaying their outstanding amounts. If you have reason to believe your clients will be unable to proceed with their due payments, consider proposing an agreement with alternative and sustainable methods of repayment.

Consider disposal of assets – no matter how you look at it, this is a tool to keep your business afloat and help you endure long enough for the situation to get better.

Cash outflows

Reduce your overheads. For example, if you are renting an office, contact the landlord and explore the possibility of negotiating the reduction of your monthly rent for a specified period of time.

Contact your suppliers to either request a discount or change the payment terms. Also, reach out to your payables with a proposal for an extension of the payment due.

For any existing loans, examine the viability of renegotiating your current interest rates.

General comments

As in any crisis, the best thing you can do for yourself, your business and your employees is to seek professional advice. A reputable professional can and will evaluate your situation and will provide you with realistic options on the way forward, including the support for the preparation of your application for current governmental schemes for business owners and COVID-19 economic measures programme.

In case things are looking bleak, considering a merger with another business can be the best option for your business and for your employees.

On the other hand, if you have strong liquidity, be on the look-out for opportunities to acquire defensive assets, or append your marketing strategy to attract new clients, e.g. attractive deals, special offers or new services. Also, it is worth considering to proceed with an asset acquisition which will further establish your business and, at the same time, will provide relief to the other party and contribute to the stability of your community.

To conclude, though we are yet to see the full extent of the damage inflicted by the COVID-19 pandemic, either in human life, or in the impact on the global economy, one thing is for certain – the preventive measures implemented by governments worldwide might be here to stay. We need to adapt to the new normal and be on the look-out for new opportunities. By helping ourselves and our businesses persevere, we are helping to revive the local economy and with it, our local communities.

Michael J. Hadjihannas

BSc MSc ACA ADIT