We have therefore been speaking to our contacts at the banks (including Barclays, NatWest and Lloyds Bank) about the support they are offering and discussing with clients how they can prepare.
In this article, Leighton Bower discusses some of the proactive steps that you might consider for your business.
1. Set up a response team
Assign responsibility to a senior manager and form a team to identify your business vulnerabilities (particularly the impact to customers, suppliers and staff), assess your preparedness, establish contingency plans and carry out internal communications. They should ensure staff are well informed and reminded on basic hygiene precautions and that real-time health communication is possible across the workforce.
“Having a joined up, well planned approach is important and will ensure that you are ready to make and implement decisions if your position should become worse in the days and weeks ahead.”
2. Review your business risks
Key areas you should look at include your liquidity and the funds held in reserve should income fall. Also consider the demand side risk, supply chain risk and your workforce mobility.
“Consider whether there has been any change in your breakeven point as a result of increased supply costs or workforce productivity. You may need to adapt your performance targets to account for changes in your trading environment.”
3. Confirm your contingency plans
What would the temporary closure of an office or location cost your business? What if you have to source alternative, more expensive suppliers or face delivery delay? How would you deal with a cash flow shortage? These types of critical scenarios which impact revenue or costs should be reviewed and plans put in place to address them.
“Sensitivity analysis will show the areas where you are at risk and which therefore need the most thought and planning.”
4. Check your supply chain
Companies need to define the extent and likely duration of disruption to their supply-chain. Consider whether you should ration critical parts, pre-book rail/air-freight capacity, use after-sales stock as a bridge until production restarts or try to gain higher priority from your suppliers. Also you should consider your pricing strategy if your supply chain becomes constrained and how hoarding or panic buying might impact your demand when your supply comes back online.
“It may sound counter intuitive to pay suppliers quickly or by proforma from a cashflow perspective, however if by doing so it gets you to the front of the line it may be worth considering in supplier-led markets. For importers seeking alternative suppliers, Lloyds Bank are promoting their free to use International Trade Portal, to assist in researching potential suppliers. We are able to put you in touch with Lloyds if this is of interest.”
5. Review your funding and cash flow support
It has been reported that some high street banks are rolling out emergency loans to businesses that are showing signs of financial strain amid the Coronavirus outbreak. Barclays in particular, has instructed its 1,500 relationship managers to contact at-risk customers, and has signed off its first batch of overdrafts and short-term loans designed to ease the financial strain of the coronavirus outbreak. They include cases where Chinese deliveries have been severely delayed or payments have not been received from clients who are under quarantine overseas. Barclays is also said to be offering business clients 12-month capital repayment holidays on loans worth more than £25,000, as well as access to a £14bn fund launched last year as part of a three-year commitment to small firms to build resilience during uncertain times. Meanwhile, NatWest has promised £5bn to support UK small and medium-sized businesses suffering from disruption caused by the Coronavirus outbreak, though the details of how this will be allocated are not yet clear.
“I would advise businesses who are concerned about their financing arrangements or cash flow position to speak to their bank relationship manager to look at their individual case to see whether there are solutions such as a temporary overdraft or loan facility is available to them. Also when assessing this they should consider the costs of finance and any impact on overall profitability. We have been speaking to our contacts at the banks to stay up-to-date with solutions they are offering. Please contact us if you would like to know more about the available financing options.”
6. Check your insurance policy
You may need to check your terms and conditions of your insurance policy to ensure that you are covered under your business interruption insurance.
“Some policies may specify a precise list of illnesses, irrespective of government classifications, so you should speak to your insurance broker immediately.”
7. Review your HR policies
Review your sickness, absence and reporting policies/processes to check they are fit for purpose and are feasible for the business. Are your team able/prepared to work from home at short notice and has the technology and systems that will enable this been tested? Will you treat COVID-19 as any other illness or put special provisions in place?
The key is to make sure you have the right balance between business affordability of workers off work simultaneously and not discouraging early self-reporting. Statutory sick pay is usually only paid on the fourth day of absence but the Government has announced this will shorten this to the first day they take off for those self-isolating due to Coronavirus. However, staff should be told by the NHS or a health professional to self-isolate rather than deciding themselves. Furthermore, ACAS has advised that if an employee is not sick but asked by an employer not to come to work then they should get their usual pay.
“Don’t leave it until it is too late to find out that systems and equipment to allow home-working are not functioning as they should. Have employees test their equipment right away and confirm so that you have a record of who is able to carry on working from home.”
8. Consider your travel arrangements and visitors
Public health organisations recommend that companies prohibit employees or visitors from coming to the workplace for a period 14 days after a “medium” or “high-risk” exposure to the virus — generally meaning having been in close contact with someone who is known to be infected, or having travelled from a high-risk region.
Remind staff who are travelling to other countries to check up-to-date travel advice on gov.uk before departing. You may also introduce a policy where staff need to inform you of any travel abroad (on business travel or their annual leave). If travelling to high risk areas is necessary, you should keep in contact with your colleagues and ensure they take necessary precautions and know what to do if they feel ill.
Also, consider whether you can host meetings via video conferencing rather than in person if feasible, practical and where there is low impact to meeting effectiveness.
“Do you have processes or systems in place to ask employees and visitors if they have visited high risk areas so that appropriate action can be taken, such as postponing meetings or working from home?”
9. Check your audit
Have you checked whether your audit considers the risk to your business? The ICAEW has provided guidelines to help auditors meet their obligations under UK audit standards and ensure that their work is as robust as possible despite the challenges presented by the spread of coronavirus. From an accounting point of view, asset valuations may be impaired and inventories may need to be written off. Auditors may need to consider whether risks to the supply chain or a potential macro-economic downturn could put the going concern status of the business at risk.
“Auditors need to be thinking ahead. While many will be focusing on December year end audits; March 2020 year end audits are on the horizon and it’s important to identify which might be impacted. Our audit team will be working to ICAEW recommended guidelines and speaking with management to understand the impacts on companies affected.”
Clearly this is a very fast developing situation and we will be watching how it develops and whether there are further steps that clients can take to mitigate their risk exposure. You can subscribe here to our quarterly e-newsletters and timely coverage of key events throughout the year.