Thursday 4th Jun 2020
Written by Colin Johnson, read more about Colin here.
I’ve read many articles in recent weeks whilst we are all in various states of isolation/lockdown relating to best practices on maintaining your physical and mental wellbeing. I thought I’d share some of my thoughts around maintaining or even improving your businesses wellbeing during these difficult times and beyond.
Let’s start with one of my favourite quotes from Warren Buffett who knows a thing or two about business health and liquidity: "only when the tide goes out do you discover who has been swimming naked". In short, you’ll only find out how solid a business really is when times get tough, which it’s safe to say is where most of the UK economy is right now!
Since the outbreak of Covid-19 we have seen businesses of all shapes and sizes seek to preserve their cash holdings and/or secure the various Government/Treasury backed schemes which were quickly announced e.g. CBILS, staff furlough etc. These are all wonderful initiatives aimed at supporting the UK economy but all of these should be considered closely before committing your business to what could be an unrecoverable position.
Taking CBILS or BBLS as an example, whilst this would give your business an immediate cash boost at a commercial rate with no personal security required, it is a loan that is required to be paid back so ask yourself “will your business be able to afford the repayments”? A simple way to get an immediate feel for this would be to see if your previous 12 months financial results generated enough cash to cover these loan repayments. Even if the answer is “yes” to this question, do you have enough certainty to suggest your business can get back to this level?
Another area where I’ve seen businesses trying to preserve their cash is via their suppliers with examples ranging from not paying at all to significantly extended payment terms. Whilst this might help to solve your problem, it doesn’t solve THE problem in that it just moves the problem to another business i.e. your supplier. Before you take this step, you should consider the impact on your supplier and how this might impact your relationship and specifically if you believe you will need these valuable business partners once normal service is resumed - do you want to upset some of the very people you will be looking to rely on to bring your business back to health?
There are many other ways to both protect and preserve your business during this downturn, so whatever action(s) you may have taken or are considering taking, I would recommend you ask yourself – what will it take to ensure my business survives but also enable it to rebound and effectively unwind from the actions I am now considering taking (or have taken)? It can be a very lonely place running a business at the moment so being able to bounce your ideas off a mentor or trusted business associate can be invaluable and remember there are lots of great business restructuring professionals out there who can help with your plans, don’t be afraid to invest a little bit of money getting this advice as it may be the best money you have ever spent.
In part 2 of this blog I’ll take a look at what we can learn from this situation to ensure that your business comes out stronger.