“Anybody leading a business, however big, is facing some remarkable challenges right now. It’s important that you stay clear headed, stick to some basic rules, and get on the front foot! Think of it as a 3-year business plan compressed in to three months.”
Guest blog by Chris Dines, CEO Informed Funding
Hot off the heels of yesterday’s first Ask Arena event – a new virtual series to give practical advice to our industry during Covid 19 – key note speaker, CEO of Informed Funding, Chris Dines, shares his advice to help business leaders manage finances during the crisis.
The Covid 19 challenges to business leaders: Fronting up financially
Anybody leading a business, however big, is facing some remarkable challenges right now. It’s important that you stay clear headed, stick to some basic rules, and get on the front foot! Think of it as a 3-year business plan compressed in to three months.
In the very Short Term, split your thoughts between Team, Cash, Customers and Suppliers. I’ve also added a note that business leaders already need to think about medium term impact on business and funding models. All of us in business need to front up to the financial challenges ahead
1. The Short Term
Team
Goes without saying that the first priority is to follow Government guidelines – it’s not only the right thing to do, but your team will expect that of you.
I’ve headed this “team”, and most SMEs will have a mix of full-time staff, part timers, zero hour contracts and freelancers. They all face different cash challenges.
Be open and communicate with them all – which also means no bullshit or false expectations regarding the financial impact of what is happening right now. Don’t make out you know every answer – you don’t!
As an employer, try and do you best at collating advice on personal finances – or get one of your team to do that. Above all, you need to have a team ready for the upturn, which will come. Poor financial leadership now won’t be forgotten
Cash
For most SMEs, the implications of Covid 19 are immediate and a bit scary – both for your business and no doubt for what it means personally. Having the cash or facilities to stay in business through to recovery is the number one concern.
A Golden Rule still applies – do not borrow unless you have expectation that you will be able to repay. The lack of visibility over future revenue can make that difficult, but that’s an even better reason not to “panic borrow”. Borrowing to fund recovery is a different matter.
With this in mind, apply three steps:
a. Find the Free Money. Identify and claim as much “free money” as is available, legitimately, for your business. That includes small business grants, rates holidays and of course the employee furlough scheme. These schemes keep developing as they roll-out – stay updated. And it’s not only these new schemes – it’s a chance to look at existing areas that can help, such as R&D tax relief.
b. Borrow Cheap. If you need to borrow (and believe you can repay at some point) the simplest and cheapest way to borrow is, remarkably, from HMRC right now – through their mix of PAYE and VAT settlement deferment. Just remember that you will still owe HMRC the cash. It’s another area subject to continuous updating.
c. Establish Facilities you don’t need (yet). If you already have commercial borrowing, then focus on making sure that you a) don’t see your facility disappear straight away and b) see if you can extend or put in place facilities that you will then try not to use.
This is a very complex area, and highly influenced by who you already bank with. There is currently a difference between banks that are accredited to use the Coronavirus Business Interruption Loan Scheme (CBILS) and those not. Make sure you understand the approach your existing lender is taking to the crisis. Many lenders will look to invoke “changes in trade” to request PGs and Charges against personal property – think twice, think hard.
Customers and Suppliers
My golden rule here is to act in open partnership as quickly as possible. Businesses that take the “opportunity” not to pay anybody, or aggressively renegotiate terms, will regret it later. Most business are in some form of supply chain, so don’t be the business that breaks it.
Be open and helpful about the position – and that includes being clear on how you expect to handle cash flow. Wherever possible, work together – it’s not just being nice, it’s just vastly more effective.
Many SMEs supply in to big organisations that have very strong balance sheets and cash flow – I’ve seen many cases where they are already assisting in terms of accelerating payments and also bringing forward orders where possible. You should already be speaking to ALL your customers and suppliers.
2. The Medium Term – Start Thinking!
None of us know how the economic impact of Covid 19 will map out – though it doesn’t stop a lot of scenario testing. At the very least the current situation is accelerating change in a host of commercial activities. Some very obvious, such as online meetings and home deliveries, but others possibly less so – perhaps the way you go about buying a house, managing IT security and self testing for health concerns.
So do start considering changes in business model. When the upturn happens, it’s unlikely to be business as normal – so think about how you can tweak what you do, or look at things more fundamentally. Disruption creates opportunity – and if you are not thinking about that, your competitors probably are.
And a final note on funding – not least the market for equity investment. Currently most Investors (private, VC, Private Equity etc) will be focus on how their existing investments adapt to the current disruption. This will squeeze new investment activity for a period – but not forever (and possibly not for very long at all). Investors, more than ever, will look for business leaders who can adapt to challenge, pivot their business if needed, and spot emerging opportunity.
For support and advice, email info@informedfunding.com.
NOTE: information correct as of 3 April 2020
