Technical

FAQs: COVID-19 and your business – Operations

Alan Dale Alan Dale

As our clients move beyond their initial reaction to the COVID-19 situation, they begin to think about how to both restore their operations and to re-imagine the way they work to ensure future resilience. Alan Dale answers your questions about how you can manage and move beyond the current circumstances.

Strategy

How long does it take to scenario-plan?

You can spend weeks and months on it, completely losing yourself in it. However, you can get most of the key points covered within a day. You may spend some time refining things later on, but you should be able to get a clear line of sight pretty quickly.

Should we put our strategy on hold and create a new business plan? Is that really viable?

Not at all. No-one is suggesting you create a new 150-page document. You simply need to be aware of the situation and its impact, so you can change the areas that need to be changed. Work at scale - automotive, for example, will not need to change strategy very much in the long term, while restaurants and retail will need to think about their base assumptions.

Are you finding any companies using quality management-driven solutions, ie, defining processes and procedures, improving understanding and teams, and correctly identifying key performance indicators?

At the moment, no. Most of the changes that businesses are making are around people and real estate rather than more-detailed process solutions. We suggest these will be useful when engaging the wider workforce in making larger changes.

I have a management team that I inherited six months ago that hasn't been functioning particularly well together. Do you have any tips to help them see this as a really great opportunity to step up to the plate and start working better as a team?

Any big event can put a team under stress and that can become an opportunity to get them working together. You can't. however, just expect this to happen on its own. You need to put in the time to find out where the issues have come from and why the team aren't working well together. A common issue is for attempts to resolve conflict to just be lip service, but the COVID-19 situation can be a catalyst to take that theory and put it into practice in the workplace.

Government loans

Are the Coronavirus Business Interruption Loan Schemes (CBILS) and Covid Corporate Financing Facility (CCFF) open to Scottish companies?

Yes. CBILS has been designed to be offered through a range of banks, including those in Scotland who are accredited under the scheme. There are more than 40 accredited UK banks.

Do you think small, limited-company start-ups who are bootstrapping (with minimal debt and re-investing heavily) will eventually be recognised as needing support?

CBILS is for companies with revenue up to £45 million. If companies are eligible, they should be able to access the scheme. On 6 April, the government announced a series of changes to the scheme to open it up to companies that were not initially eligible. If you haven't been able to access the scheme, go back to your bank and have another conversation, as things may have changed.

If there are UK and overseas entities within a group structure, would the turnover of the international entities be included in calculations?

What we're seeing lenders do is look at the revenue of the group, as a whole, as this feeds into whether the group is a small or medium enterprise (SME). They then want to understand what the UK element is and some lenders may be prepared to consider the turnover of the UK business, but we have few data points and have not yet seen a definitive answer from the British Business Bank.

Foreign entities may be critical to the UK entity. How do you deal with that?

In terms of the CCFF, the Bank of England states that "in practice, firms that meet this [eligibility] requirement would normally be 'UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK; companies with significant employment in the UK; firms with their headquarters in the UK; We will also consider whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK."

What repayment terms have you been seeing on CBILS loans?

The guarantee covers loans spanning three to six years. The government has said that they will pay the fees and interest due for the first 12 months outright. That isn't a loan and you won't need to pay interest or fees for the first year, but the terms thereafter are up to the bank on a case-by-case basis.

Are there any restrictions around what CBILS lending is for?

The lender has discretion around what the loan is used for, however, the guidance from the British Business Bank (BBB) is that the loans should be used to support UK businesses through issues that are related specifically to COVID-19, and the money should not go outside of the business or the UK.

I just learned that the CBILS is not available for companies that broke even or made a loss in recent years. My business' issues were a result of the uncertainty of the Brexit policy, in combination with a strategy change forced by this. Is this correct?

The company must have a borrowing proposal that the lender would consider viable were it not for the COVID-19 situation and the company or directors must self-certify that it has been adversely impacted by the circumstances. This would not necessarily exclude a company that is loss-making or breaking even, but the company would need to demonstrate its challenges are due to the impacts of COVID-19.

Under the CCFF loan papers scheme, what is the minimum loan size?

The Bank of England states that "the minimum size of an individual security that the fund will purchase from an individual participant is £1 million nominal. We require offers to be rounded to the closest £0/1 million."

Cutting costs

What are you seeing in terms of companies having to reduce costs quickly?

Businesses were quick to take up the furlough scheme as soon as it was announced, and we're all now waiting for that scheme to be extended. Since then, there's been a lull in activity as people wait to find out how the situation develops. At the moment, everyone's just tired and trying to get to Easter for a bit of a break.

Next week, it's expected people will start making some deep cuts to their costs. It's easier to make drastic cuts now and ramp back up later than to start with a light touch and make the tough decisions in the future. We're certainly seeing people be far more aggressive now than they were two or three weeks ago.

Workforce and rent costs are what most businesses are thinking about first. There are mixed results around rent negotiations, depending on landlords.

In terms of people, many businesses are having difficult discussions regarding what we're calling 'furlough envy'. Most of our clients are putting some employees on furlough and keeping essential staff on reduced hours, but many essential staff would prefer to be on furlough. Leaders shouldn't be too hard on themselves for these decisions, as they need to keep their businesses running.

Another emerging discussion is the reputational issues involved in furlough from a PR angle. What kind of a profit level is acceptable for using the furlough scheme? From a moral, ethical and PR angle, is furlough the right thing to do and what other options are available?

Cashflow

Any good ideas that can help with cashflow when customers are using this situation to stop making payments and, therefore, restricting our ability to pay our suppliers?

It's a tough situation that we're seeing all over. Understand which customers you are more important to, push back and keep talking. We've seen businesses actually bringing forward essential payments or pro-actively approaching customers they think may not pay to offer a payment plan - at least, that way, there is some in-flow of money, though not the full amount.

Many clothing retailers I work with have outstanding Q1, Jan-March, invoices to pay. This seasonal stock will be out of date by the time they re-open, hence they will be unable to afford new seasonal stock in the autumn. Any ideas?

This appears to be a common problem and there is no easy answer. If viable, it maybe possible to raise funding against the stock (although the advance level will be low) and try to use as much of it as possible in next year's season. This would include warehousing costs as most retailers would not be able to hold the stock. Alternatively, look to current government funding to buy autumn stock.

If you have other questions regarding moving your operations beyond COVID-19, get in touch with Alan Dale.

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