The events of the first half of 2020 represent one of the greatest challenges to business in the last 100 years. An economic downturn will result in many businesses failing. Others will find business improving with increased demand, such as IT support services due to increased home-working. Wine sales soar at the expense of pubs and restaurants. There will be a number of businesses however that will need to scale back, taking advantage of the unique opportunity offered by furloughing and the Coronavirus Job Retention Scheme (CJRS).
Studies and reports by McKinsey show businesses that exercise rapid but targeted cutbacks, whilst also targeting investment and R&D, come out of the recession in a far stronger position than those that blindly cut back or invest liberally as things ease. These are the Resilient companies (see chart).
What did the resilient companies do that non-resilient companies did not?
These are the resilient companies interventions:
- Resilient companies cut their costs harder initially but in a targeted way. With Covid-19, this has been assisted by the CJRS allowing businesses to cut costs whilst still retaining employees. This gives businesses time to re-evaluate those staff in line with the business exit strategy and some hard decisions may need to be made. Retain those employees that will drive the business out of the recession and ensure that you prepare the necessary training and guidance so that the whole business is driving in the required direction. Remember employees can undertake training whilst under furlough. Build the team that will drive the company forward.
- Resilient companies closed non-profitable parts of their business. During Covid-19, the population has been forced to make greater use of online resources. Offline parts of a business may need restructuring or even closing if they were struggling before the shutdown. A review or automation of the distribution network of your business may produce the efficiencies necessary to expand out of the recession.
- Does your business need to develop digital platforms to help its online presence? Cloud accounting can help with emailing orders, invoices and statements and may save significant postage costs and processing time.
- Review your markets. As your trade returns, where will it be coming from and is your presence in those expected market places sufficient? Or do you need to consider investment in targeted marketing to exploit the recovery? Resilient companies did not just cut costs, they targeted the recovery and invested in R&D and marketing so they were best placed coming out.
- Does your business need to consider investment? The Coronavirus Business Interruption Loan Scheme (CBILS) will provide 12 months of interest free funding. If your business utilises the funds effectively , this may provide greater returns to propel the recovery and subsequently repay the loans. This may be the opportunity your business needs. CBILS loans below £250,000 do not need personal guarantees. Now could be the time to develop IT platforms and invest in R&D, which itself may produce funding with a 130% enhancement of costs and, if loss-making, can produce a 14.5% tax credit. Do you have too many standalone programs that could be integrated into a modern platform?
- If you have raised money in the last five years in excess of £250,000 consider if the Government’s Future Fund may be of assistance, with convertible loans converting into equity at the next funding round. There is then no drain on company cash flow. https://www.gov.uk/guidance/future-fund
- Most recently the government are offering a 100% guaranteed “Bounce Back Loan” of up to £50,000 to help businesses recover from the effects of Covid-19 www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan .
- The last element is through-cycle interventions that are operational and revenue based. This is where you need flexibility to ensure that your suppliers can provide for your needs in a timely and efficient manner. You need to discuss with your suppliers how to move from lockdown to business as usual or even expansion. They may have their own supply issues that you will need to build into your planning.
Surviving Covid-19 will involve teamwork and support for many businesses. UHY are and will be here throughout to assist with both grant and furlough claims (CJRS). We are also helping businesses with CBILS applications as well as general support and advice. Please contact the partner assisting you or contact your local office if you would like to discuss your Covid-19 strategy with us.