When it was announced on Thursday, 12th March that schools would close, it impacted us all as either a parent, grandparent, aunt or uncle. Little did we know that within 24 hours the economy would start to grind to a halt. 24 hours later the shutters came down on the hospitality sector. In the subsequent two weeks, hour by hour, day by day businesses across all sectors of our economy where forced to put their crisis management and business continuity plans in place. Within hours employers were able to safeguard the health and wellbeing of their workforce through remote working and putting strict measures in physical work environments for those unable to operate remotely. However, the overriding challenge no business was able to plan for was the sudden negative impact on their cash.

Cash

In the subsequent two weeks the Government listened to feedback from those representing all sectors of the business community from micro companies to PLCs as they all grappled with the impact on their cash. Various very welcome initiatives were announced by the Government and these have started to kick in providing much needed cash to pay any entity’s most critical ingredient, it’s people. Business should avail of these supports and by doing so are not confirming that they are insolvent.

While this will alleviate the pressure on businesses to pass cash to employees over the next 12 weeks, businesses are still tasked with taking ownership and responsibility for their own survival. Might sound harsh but this is the reality. The coming weeks are all about the fight for survival, from both a human and business perspective, the former is and will continue to take precedence over the latter.

In order to survive, business must conserve, not hoard cash. With each passing day this becomes even more challenging compounded by the necessary Government announcement late on the evening of Friday, 27th March as business leaders sought to unwind after a deeply stressful and challenging week.

These measures are and will impact even further on the ability of all businesses to generate cash inflows. While business will continue to trade in as much as it can in order to continue generating and collecting cash, its cash reserves will reduce day by day and week by week.

As business will have less control over and less certainty on its cash inflows, it is forced to place greater control on its cash outflows. Essentially being forced to make decisions on who it will pay. All businesses by in large have the same broad range of key stakeholders: employees, customers/clients, suppliers, creditors, landlords and funders, each of which play a competing critical role in the survival of the business. As your cash depletes and business continues to fight for survival, the reality is that business leaders will have to make hard and painful decisions on who it can pay and how much they will pay them. Over the coming weeks business must engage and communicate with each of these stakeholders in an open, honest, responsible and transparent manner. They are all in this with you. As a nation and globally we are in this together.

At present, there is no black and white, right or wrong way to do something, it’s all grey, but blue skies do lie ahead.

It’s vital that cash continues to flow and that key stakeholders are not starved of cash. Your key stakeholders may need you more than you need them so therefore it is vital that you continue to engage and communicate with them on an ongoing basis, regardless of how painful your communication with them will be. Honest, responsible and transparent dialogue will win through in the end. Cash is like blood and needs to keep flowing in and out a business.

What else

Management teams will also be compelled to look at cost (including payroll cost on expiry of Government supports) and assess each line item of cost. It must cut out non-essential expenditure and cut back on core expenditure required to keep the wheels turning, Again, this will be painful but a necessary reality as directly it impacts future cash outflows.

Innovative ways on how to sell goods and services will also be high up on the agenda and this will create a motivating challenge for employees. This will have been a feature of business plans and strategic plans for lots of businesses over the last numbers of years but never made it high enough up the agenda to get the attention it warranted. Now is the time to look at this and implement what the new normal business world that it is unfolding requires of you which in turn with assist with your survival.

Businesses which have been forced to shut down temporarily need to set out the working capital required for them to re-open, engaging immediately with their funders to have this is place when the time comes to change the sign on the door from “Closed” to “Open”.

Other matters which may not be high up on the agenda today but over the next few weeks should move up the agenda are the filing of annual returns with CRO and ensuring compliance with Revenue filing obligations and other regulatory bodies.

Amid all this it is important that teams take time to focus on their own individual and team wellbeing. There are lots of ways to do this and this should also be on the agenda and input from teams as to what works best.

Conclusion

A business can make profits or losses but can only run out of cash once! To survive this must not happen. And remember profitable businesses and those that may be cash rich currently are fighting and planning for survival too due to the sharp negative impact recent weeks has had on their cashflow.

However, Covid-19 is first and foremost a threat to human life and therefore our physical and mental health are a priority. If we don’t have these, then we will not have the energy to fight the fight to save the economy.

David Swinburne is a Chartered Accountant and holds an Insolvency Practicing Certificate from Chartered Accountants Ireland. David has over 20 years of experience advising businesses in distress and providing turnaround and workout solutions. He is Restructuring and Insolvency Partner and Head of Advisory at FitzGerald Legal & Advisory.

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