Can your business survive the Coronavirus?

The Coronavirus (“COVID-19”) has quickly escalated into what is known as a black swan event. The virus first revealed itself in Wuhan, China in late December 2019. As we enter April 2020, the virus has infected over 683,000 people, and more than 32,000 deaths.

The provincial and federal governments have announced several measures to help small and medium-sized enterprises, however, the quintessential question is how long will it last?  

One thing is for certain the impact on businesses will only worsen as the virus continues to spread – so we are recommending that our clients prepare for the worst-case scenario.

Can you continue to operate your business?

Provincial governments are determining their own lists of industries that they deem to be essential services.  If your business is a non-essential service, you may be required to temporarily shut down, with potential fines for non-compliance.

For more details, please visit the official provincial or territorial websites below:

Supply chain management

Do you have customers that typically delay payment for the goods or services you deliver? Is there a supply restriction for one of your key vendors?   

A major consideration is to determine whether your key customers or suppliers remain reliable. Without available products or services, your business may have difficulty operating in the near future. Being situationally aware of your suppliers’ status will help you better-plan your near-term outlook.

Don’t wait to confirm your credit

The recent turmoil has put tremendous pressure on banks and other financial institutions. Do not assume that your existing financing options are still available. How much will you need? How long will you need it for?

Actively engage with your lenders now so that there are no surprises should you require financial assistance in the future. It’s important to maintain an open line of communication with your account manager or branch contact. They will help you navigate any hurdles regarding prospective financing.

Focus on preserving cash flows

In periods of economic turmoil – focus on cash flows is paramount.  

  • Be relentless with your cash flow projections – now is not the time to be optimistic about securing that major contractor, or that you will enjoy future cost savings.  Be realistic, and consider whether it makes economic sense to stay open or temporarily shut down.
  • Extend payables, where possible. Is your business too prompt on paying your suppliers?  Consider whether you are taking full advantage of the payment terms made available to you to preserve working capital.
  • Expedite your receivables – given the point above, don’t be surprised if your customers are thinking about also extending their payments to you, therefore, you need to ensure your collection process is ironclad.
    • Focus on collections on a customer-by-customer basis. Is one a routine offender?  
    • Revisit your payment policies. Can you restructure your contracts to require a part for full payment upfront?
    • Ensure the basics are covered. Timely and accurate invoicing is paramount. Errors in this process can lead to delays that can be too costly to afford.
  • Revisit all your costs – yes, all of them. Trim your variable spending such as entertainment and training. Investigate whether you can take advantage of options to temporarily defer larger costs, such as deferring your rent, tax, loan principal and interest payments. 

Remember the first point about cash flows?  While this may offer temporary relief, these payments cannot be deferred indefinitely, and you can only rob Peter to pay Paul for so long. Consider how you will be able to pay these deferrals in the future.

Speak to your insurance provider

Your insurance plan may entitle you to business interruption insurance payments. This is typically an add-on policy in the event of your business temporarily needing to shut down. There are 3 types of policies:

  1. Gross earnings policy – pays only until the property is repaired or inventory is replaced.
  2. Profits form policy – pays until businesses resume to a pre-interruption level.
  3. Extra expense policy – pays for additional costs until a business recovers from a major disruption.

Speak to your insurance provider to review your potential entitlements.

Manage your human capital

Much like determining critical processes, you need to understand the minimum level of personnel required to support your operations.

Developing a summary of all your staff, their job functions and roles could be helpful.  Consider training employees to ‘wear multiple hats’, so that they can step in if there is an unexpected employee absence.

For many businesses, the COVID-19 pandemic may be the first time they’ve had to consider allowing employees to work from home.  Depending on your industry, some or all of your employees may be able to work remotely, but there are key considerations to ensure productivity:

  • Stay connected via multiple means of communication (through phone, e-mail, instant messaging, etc.) is more important than ever.  As an example, we use Microsoft Teams to connect with our employees twice a day for status updates.
  • Be clear with expectations – is it more important target hours are reached or completion of tasks?  Keep in mind there are countless unavoidable distractions at home, especially if your employees have children that they must care for.
  • Ensure your employees have what they need – not everyone has the tools to work from home, so talk to your employees and ensure they have what they need to do their jobs.

Don’t wait to on incentives, and heed the advice of your professionals

COVID-19 is a highly dynamic situation. As it worsens, governments will be under increasing pressure to combat the economic impact through more aggressive economic response plans to benefit small and mid-sized businesses.

Make yourself aware of all options available to both businesses and individuals.  If you are not comfortable with wading through the fine print – now is the time to pick up the phone and have a call with your trusted advisors.  

We understand that it is a difficult time – we’re here to help. If you need guidance and you cannot afford it, KPCPA is offering free or fee-deferred assistance for eligible business owners.