The economic consequences of the coronavirus on future trading assumptions, and the direct impact on many companies in the leisure, travel and consumer sectors already, will place some companies under liquidity pressures and potential covenant breaches from their debt facilities.
Shaun O'Callaghan highlights seven practical steps businesses can take to maintain stability during these uncertain times:
1 Change your approach to cash flow forecasting
Companies that have not faced a liquidity crunch before can find the actions needed to change their cash flow management processes overly demanding. However, moving to a receipts and payments basis, daily forecasting and integrating short- and medium-term forecasts almost always increases headroom, runway time to implement other actions and confidence with shareholders and lenders.
2 Stress testing
Stress testing forecasts for different impact scenarios will help provide better clarity on the sufficiency of liquidity and inform the required actions and asks of financial stakeholders.
Check your compliance with the covenants and obligations in your various debt facilities, including the representations that have to be made on any drawdowns.
4 Be proactive in speaking to your lenders
The more notice that you can give your debt provider of the impact of coronavirus on trading performance and liquidity, the more chance there is of getting the flexibility you may need.
5 Prioritise existing shareholders
While new money could be raised from third parties, it will potentially be both expensive and a difficult process. Most often, the existing shareholders and lenders to your business should be your priority.
6 Working capital modelling is essential
Certain types of debt facilities are more-quickly impacted by downturns in trading. This is especially so for asset-based facilities where available funding is driven by debtor and stock levels. Careful modelling of the impact of trading on headroom levels is essential.
7 Review temporary finance options
Other sources of temporary financing include deferral of monies due to HMRC through a ‘time to pay’ arrangement, customer payment profiles and asset specific finance.
Speak to one of our restructuring experts about coronavirus readiness today
Having access to experts, insights and accurate intelligence as quickly as possible is critical. To discuss any queries related to the coronavirus, or if you are concerned about your responsibilities as a director as a result of liquidity issues, contact Shaun O’Callaghan, or any of our UK restructuring partners.