The Corona Virus fallout is going to materially affect many businesses including sole traders, partnerships, corporate organisations in the Small and Medium Enterprise space, Large corporate and listed organisations and many Government agencies.
What is certain is that they are all facing similar challenges that have arisen a result of the onslaught of the global Corona Virus and the collapse of global financial markets.
In my view, if we panic the situation will only escalate and drive further negative sentiment and uncertainty.
The difficulty for all those organisations, their owners and stakeholders is to determine how long the position will take to rectify and what steps and planning are necessary to manage the situation which most people and businesses have never had to face previously.
In order to address those issues, besides for taking the relevant and appropriate suggested steps in relation to health and operational issues, those organisations will be forced to assess their current financial and market positions, plan and take steps required to mitigate their future positions and in the event that where the businesses are going to be so severely impacted, they will need to take external advice from the relevant professionals such as accountants, lawyers and others, depending on the industry sector or specialisation the business may be involved in.
Many businesses small and large may unfortunately need to close or go bankrupt, but the endemic issues facing those organisations were likely to have existed prior to the Corona Virus invasion.
In relation to that advice, key issues will need to be considered and those advisers will be required to assist their clients in a way that may well be outside of their normal professional expertise. They in turn may be required to engage with other industry experts and provide collaborative and strategic advice to their clients. Therefore, looking at the current scenario and applying some basic business concepts, organisations and their key stakeholders should consider key issues, which could include the following:
- Cash flow in relation to the current and expected future position what steps would they be required to take to ensure they have sufficient cash resources to deal with their businesses being interrupted for at least 3-6 months (hopefully no longer);
- Managing financiers including the banks, trade and asset financiers, insurers and others to ensure those financiers are kept fully informed of the business situation, the owners and managers financial and personal positions and what steps are being taken by them to address the current, future and other issues;
- Other stakeholders would include, employees, customers, suppliers and landlords;
In relation to Bankers and financiers – these stakeholders are aware of the global crisis and should be engaged as soon as possible. It is expected that they will have an understanding and provide empathy to customers who may not be able to meet their ongoing commitments in a normal fashion or to comply with their existing facility covenants, until the situation rectifies itself. This assistance may include payment and interest moratoriums and where possible agreement to approve reasonable facility excesses or bridging loans. Clients will however be required to provide reliable and accurate financial and other information in order to succeed with the support they require.
In relation to suppliers, (even where they are facing similar situations), they should be encouraged and requested to provide ongoing support which may include continuing delivery of goods and orders in order to maintain their customers trading ability and provide ongoing commercial credit to enable the customers to manage payments during these extremely difficult circumstances.
Employees – most organisations are taking the necessary steps to protect employees and their families and discourage exposure to unnecessary business and social interaction by temporary closure of offices with staff working from home. Those who are not able to do so, are putting in place World and Australian Government Health Organisation guidelines to provide the safest work place environment possible. What will be vital, is to communicate clearly and provide employees with assurances that despite the current circumstances the businesses will continue to employ their staff in the best interests of all concerned. Where that is not possible, they should consult their financial and legal advisers or Government agencies.
Other organisations may include statutory and quasi bodies such as the Australian Tax Office, Office of State Revenue, Workers Compensation Insurers etc. These organisations should be made aware of any issues the business is facing, or may face in the future and where possible arrange interest free payment arrangements or other assistance to assist in managing the organisations’ cash flow.
Landlords – These key stakeholders which include, retail, commercial and industrial and infrastructure landlords will likely face large numbers of tenants requesting assistance in order to survive. Where possible, in the interests of providing a lifeline, temporary arrangements should be facilitated to assist. Some retail landlords are already offering 3 months rent free periods. Landlords will of course need to approach the same stakeholders that their tenants have to deal with, whether they are financiers, suppliers of services and goods or staff in order to manage the current crisis they are facing.
Directors of listed and large Corporate companies who find themselves in difficult financial circumstances as a result of the Corona Virus may avail themselves in greater numbers of the Safe Harbour protection in accordance with the Corporations Act. The safe harbour provisions, which commenced in 2017, will protect directors from personal liability for debts incurred by an insolvent company if, after a director ‘starts to suspect’ that the company may become or is insolvent, the director starts developing a course of action that is ‘reasonably likely to lead to a better outcome’ for the company than the immediate appointment of an administrator or liquidator. In order for the safe harbour to apply, the debt incurred by the company needs to be ‘directly or indirectly’ in connection with that course of action taken by the director. Part of the business plan may well include some of the strategies addressed above.
Individual stakeholders and business owners such as Specialists, GP’s, Dentists, Physio-therapists, Optometrists and others who need to engage with patients face to face have to address more difficult issues. Besides from taking the necessary health precautions, they cannot manage their businesses remotely and if they are required to close for any of the Corona virus issues, they will have to manage their practices in the same way as any other businesses but for the fact they cannot operate remotely and will face cash flow pressure for the relevant period until the virus is eliminated.
What is certain is that we are all in this together and as long as we take measured steps along the way, we will all hopefully be able to get through these challenging days, weeks and months. If expert advice is required take it earlier rather than later.
If you or any of your clients or stakeholders have any questions or concerns in relation to the above, please call Trevor at CRS Advisory on 0412138130 to have a no charge discussion.