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The post-lockdown plan, and navigating the coming storm

The ongoing and unprecedented disruption caused by the coronavirus pandemic has left businesses scrambling to rewrite their contingency resilience plans, guided by the rapidly changing landscape.

10th Jun 2020
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Much of the focus remains on the immediate response to the acute financial pressures and resource shortages resulting from the lockdown, but there is a growing sense that longer-term planning, the kind that will ultimately decide the fate of a business, is being neglected.

No guarantee normality will resume

Experts believe a trend is emerging whereby businesses are merely treading water through the crisis with no idea how to shape themselves to deal with the challenges that lie ahead, and many may simply go bust when support schemes close.

“Lockdown is easing slightly and will eventually be lifted, wage subsidies will come to end, and operating costs will need to be paid,” said Julian Pitts, regional managing director of Begbies Traynor. “It is this time immediately following the easing of lockdown restrictions which poses the real threat to businesses, testing not only their resilience but also their viability in a post-coronavirus world.”

The government’s latest lockdown directive is to partially reopen schools and some shops in England as early as 1 June, with high-street retailers free to re-open doors on 15 June as long as they comply with coronavirus safeguarding guidance. However, there is no guarantee trade will resume exactly how it did beforehand and with thousands of new COVID-19 cases still being confirmed in the UK, extensive testing and contact tracing will be needed to prevent a second wave of infection.

“Just because the country is ready to reopen for business does not mean consumers will be ready to return to their old ways,” said Pitts.

recent Ipsos MORI poll found the majority of Britons feel uncomfortable about going to bars, restaurants and large events when the lockdown is lifted, putting companies on notice that sales are unlikely to immediately rebound.

“There is clear unease at other consequences of the lockdown ending,” said Keiran Pedley, Research Director at Ipsos MORI. “These numbers suggest that it will take some time for parts of the British economy to return to any semblance of normality, even after lockdown has ended.”

Throughout the crisis, the government has rolled out support mechanisms including the Coronavirus Business Interruption Loan Scheme and Bounce Back Loans, but there will soon come a time when this help is withdrawn, and the money has to be repaid.

Given the speed at which the announcements were made, it is also clear that many companies, and the banks responsible for the lending, have been confused by the limits of what can be borrowed. There have been numerous reports of lenders approving loan scheme applications only to back out in the following days.

Tough choices ahead

If business does not resume once the payroll and furlough grants are gone, stark choices will have to be made about pivoting or even exiting markets entirely. The prospect of both debt collectors and HMRC officials chasing for outstanding payments is very real.

“While no sector is immune from business interruption at the present time, there are some companies which have more reasons to be anxious,” said Pitts. “Some industries will be more vulnerable than others and will experience a much more protracted return to normal, while it is almost inevitable that some businesses will simply not reopen at all, particularly those already experiencing financial or operational difficulties prior to the coronavirus pandemic.”

Industries that rely on consumer spending such as hospitality, travel and aviation and high street retailers appear to be the most at-risk sectors given the need to comply with social distancing regulations.

“The operation value chain is dramatically affected, which has led a significant number of respondents to see a fall in customer demand, major supply chain disruptions, deferred launches of new products and services, and capital investment plans being put on hold,” said the Association of Chartered Certified Accountants in a statement.

In the face of this unprecedented crisis, all organisations need to respond quickly and effectively to ensure short-term survival and to build resilience to chart a path to longer-term recovery.

Stick, twist, or exit?

As SMEs are being guided on crisis planning to stave off immediate collapse, there are other options to consider, including a review of cash flow forecasts to consider how it can be used most effectively in the longer term. 

It may also be time to reconsider the business model to gauge whether the company can pivot to continue delivering services in a different way, either through online sales, takeaway, home delivery, or whether some activities can be cut, such as marketing or sales.

There is also the consideration of another wave of cases later in the year, or next year, and how that may lead to a contraction in business.

“If you're not already thinking about the next, next big thing, you’re going to lose,” said the head of risk at a Tier One UK asset manager speaking anonymously.

It is crucial firms start accruing financial reserves immediately, in preparation for a second peak in COVID-19 cases following lifting of the restrictions.

Exiting the market early may also be a consideration to avoid further pain down the line if the business limps along accumulating debts it has no chance of paying off.

“The initial buoyancy provided by the Chancellor in the shape of loans and grants for many businesses is now starting to deflate. Although widely welcomed and extensively embraced, these schemes will – for many – equate to short-term sticking plasters on irrecoverable wounds,” adds Julian Pitts.

“Two months on from lockdown, many businesses are now at a crossroads without an obvious route forward. Their doors are closed, the overheads are accruing, and even if trade is allowed to continue, research has shown that consumer confidence has been shaken.

“Restructuring and finance options should always be explored where possible, but if companies truly are no longer viable with liabilities escalating and no chance of paying what’s due, directors and business owners must take formal advice at this stage.”