COVID-19 | For Businesses | Navigating in these stormy seas
These are inevitably and unavoidably going to be difficult and challenging times for all businesses, from one-man bands through to large corporate organisations. The key to survival of any business will be dependent on many factors, but principally the decisive first steps and actions of management and owners in the early stages of the crisis.
This page attempts to explain who is best placed to help owners and managers with the provision of robust and practical advice to help maintain the short-to-medium term viability of a business, which is primarily driven by available working capital (i.e. cash, credit facilities, convertible stocks and debtors).
Before businesses owners do anything, they need to maintain their health, their family’s health and the health of their employees. Covid-19 is not a time to box on just to keep your business afloat, but then put people including yourself, in jeopardy by doing so.
Keep abreast of the mental wellbeing of yourself, your family and your team, and get help if needed. Click here for Mental Health Foundation resources.
Some key steps to survival
Immediate things YOU should be doing:
Taking steps to adopt the key policies recommended by government and other bodies to minimise risk to yourself, your employees, customers and suppliers;
Regularly review any changes made to support packages through local and national government and your business’s entitlements arising therefrom;
Where you have identified an immediate drop in revenue or your staff being subject to self-isolation, register for the wage and employee leave subsidies with WINZ under the government support package https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-support.html#null
The government have also provided some relief in respect of tax payments falling due, waiving late payment penalties, allowing deferral of payments etc - visit this link for the most up to date details of the reliefs and process https://www.ird.govt.nz/Updates/News-Folder/tax-relief-coronavirus
Discuss reductions of rates, hours or unpaid leave (subject to any restrictions on wage subsidy claims) with your staff, and preparing for formal consultation with employees or unions (where necessary);
Consider short term lay-offs, early use of holiday pay entitlements etc;
Confirm business entitlements, if any, with your business’s insurers, although most policies do not extend to business interruption resulting from a pandemic;
Produce best case and worse case six weekly cashflow forecasts to determine the size of any cash deficit you may have;
Approach your bank or other primary lenders, and seek an extension of facilities (if possible), or a deferment of payment of loans, and other lender liabilities;
Discuss with your primary suppliers, landlords and other key providers whether an extension or reduction to repayment terms can be agreed (bearing in mind they also will be suffering similar cash flow constraints);
Give early payment discounts to some of your customers to help speed up cash collection;
Offer short term discounts on services or stock sales (particularly hard to shift products) to generate cash sales;
Resolve debtor disputes and complaints to obtain settlement of long-standing invoices;
Think about the medium-term implications of social distancing, self-isolation, chronic illness on your business, and determine whether mothballing of your business activities might be necessary;
Seek advice from trusted advisers, and don’t be shy about negotiating low advisory rates;
Keep abreast of the mental wellbeing of yourself, your family and your team, and get help if needed.
When looking for advice be careful to whom you turn
When your business is, or is likely to become, financially distressed, it’s important to seek help and support from advisers that you can firstly trust, and secondly, effectively work with. If there is any mistrust, or there is a gaping void in personality or communication styles, then it is likely you will need to seek out an alternative adviser.
Start with your current advisers, bankers or other support networks that you know and trust. They themselves might not be the right people to help and advise in these times, but hopefully they know and trust the right people that they can refer you to, taking into account the size, complexity and nature of your business, as well as your personality type.
If you don’t trust your advisers or don’t wish to confide in your primary funders, then the internet is most likely where you will start looking - but be warned – the restructuring and insolvency arena is an area of law that is currently unregulated, up until 17 June 2020 when new statutory regulations click in.
As such, there are currently unregulated advisers and providers that are not subject to effective controls, monitoring, expertise or experience requirements, and who may not be the best people to seek advice and assistance from. So take care.
Seek out an Accredited Insolvency Practitioner
In 2015/16, Chartered Accountants of Australia and New Zealand (“CA ANZ”) and the Restructuring & Insolvency Association of New Zealand (“RITANZ”) entered into a mutual regime, whereby insolvency practitioners formed a voluntary accreditation regime overseen by CA ANZ.
In the absence of statutory regulation in the sector, the purpose is to ensure that those holding themselves out as insolvency practitioners and registered under the scheme have proven their capabilities by way of high level experience and expertise.
They have satisfied specific criteria as to being competent advisers and practitioners. In addition, they are obligated to comply with mandatory training, systems, controls and processes, as well as being subject to stringent ethical and professional standards of care.
Because insolvency practitioners are also experts in restructuring and turnaround of businesses in financial distress of all sizes, they will help you navigate the options, and help set a clear path forward.
Contact details for accredited insolvency practitioners can be found here.
Most insolvency practitioners give free initial advice, and/or have arrangements with primary lenders to get their costs covered during an advisory stage, although check the small print and your obligations for payment at some later date.
Benefits of taking advice from independent restructuring specialists
You will be surprised with the broad a range of experience an insolvency practitioner will have – most likely they will have dealt with businesses in your sector previously, but even if they haven’t, they know how businesses work, how working capital control is key to a business’s survival and they know what hard calls need to be made to avoid a formal insolvency, if possible.
They also have their reputation on the line with primary lenders – pulling the rug on a business unilaterally and for no reason means they will get blacklisted by the lenders. The motto of “Your only as good as your last job” is paramount in the restructuring and insolvency profession.
Some of the key benefits of taking advice from experts that have no prior knowledge of your business, is that they will give you unbiased and dispassionate advice. There is no point getting advice from someone that is:
emotionally attached to you or your business;
has a financial interest (positive or negative) in the outcome of that advice;
works with or for your major competitor or principal supplier; or
implies in anyway, that “they will protect you” from any fall out – they shouldn’t say that, and they can’t legally deliver on that.
Understand the advice before acting on it
You need to be able to:
satisfy yourself that the advice they provide is based on the most accurate information that you have, and that you haven’t withheld vital information from them;
understand the advice that they are giving in layman’s terms;
have been given the opportunity to openly challenge them on their advice;
fully interpret what it is they are saying, understand what the impact is on the business if you follow that advice; and
understand the knock-on effects (financial or otherwise) to you personally.
Financial distress can be tough emotionally
Running or owning business in financial distress is emotionally draining and if formal insolvency proves unavoidable, it can be a crushing experience, and one that is very hard for directors, particularly when they are owner operators.
It is important though that you are aware of, and look after, your mental health. The most important thing is that you all get through these challenges. Most often than not (particularly after long periods of financial struggle or events outside of your control), accepting the formality of an insolvency can actually help with the road your recovery.
You must remember though that the most important thing in life, is the health and well-being of you and your loved ones, and there is no shame in not being able to weather this particular storm, as long as you accept that you did the best you could in the circumstances.
See a list of support services that can and will help.
