Coronavirus: How accountants can prepare for a crisis
As the coronavirus spreads across the UK, businesses face a pessimistic start to 2020. Richard Murphy explains how accountants can help businesses survive the outbreak.
One of the advantages of reaching a certain age is that you have lived through a crisis or two. I have. I recall the 1987 crash, the downturn of the early 90s, the dot-com crash and, of course, 2008. But, having noted that, I rather strongly suspect that what is to come as a result of coronavirus might outdo all of these.
To be blunt, I doubt that there is a business in the UK, excepting undertakers, who can look forward to the rest of 2020 with any degree of financial optimism. The simple fact is that just as some people will die if the coronavirus epidemic spreads, so too will some businesses fail. And, in the case of business, the best precaution is not handwashing whilst singing happy birthday.
So, what precautions might be put in place? This might depend upon the sector you are in, the state of your balance sheet, the level of gearing that you face and what complications there are in your supply chain, but whatever the state of those I suspect that there are some things that most businesses could begin to plan now.
One question to ask is how people in the accounts department could work remotely. Do people have appropriate laptops for this purpose, and can they still be bought whilst some are still available? Are secure connections available? Can a VPN be created? These are all questions that can be addressed now. And they are important: keeping data flowing within an organisation is almost as important as keeping cash flowing.
Cashflow, however, will be the greatest concern for most accountants and accounts departments over the next few months. I really cannot see a way around this. Contingency planning now appears to be a matter of the highest priority.
What you really need to know is what the biggest risk to your business is if, for any reason, cash begins to stop flowing into it but the demands for payments continue. In that case, what you need is a detailed understanding of what precisely you are spending money on.
You may well have little control over debtor payments in the months to come, but you can control what you are paying out. So, make sure you have detailed cashflow and a precise understanding of it: it is going to be vital.
Then ask some obvious questions. For example, is there capital expenditure that can be deferred now? If so, why not do so, immediately?
And what about other discretionary spends? For example, is advertising expenditure really going to be useful over the next few months? And are people going to attend conferences or training events? Can commitments to hospitality at least be postponed until more is known? To put it another way, can these things be deferred right now, however precious they might be to some members of the management team?
Perhaps, most importantly, how can the balance sheet be managed over the coming months? Is now the time to apply for a loan holiday? Are there options for deferring payments on leases? Have landlords been approached for deferred payment arrangements?
And even if these are not issues as yet, have you worked out which of these options is the most important to you, and have you begun to prepare the necessary paperwork to apply for each of these deferments? If you do this now there will be less stress when you need them. And remember to also include HMRC in this mix: they might be the most amenable of all organisations to a deferred payment arrangement.
I strongly recommend thinking about these issues now. Whilst for some accountants juggling in this way is a normal way of living, it is not for many, and getting used to sending begging letters asking for deferred payment periods may be something that takes a little getting used to.
Anticipation is the key to good management. Vast numbers of companies that have never thought about making late payments or defaulting on their bank or rent obligations, let alone paying their tax late, will be doing so very soon. Getting your head around that fact is something that you might need to do. Do it now and you might be providing your company with the greatest assistance possible during the difficult times that may be ahead when paying your people might be the highest priority that you have, and everything else will be secondary.
Planning now is the only wise thing to do if your company is to survive coronavirus.
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Richard Murphy is a practising chartered accountant and professor of political economy at City, University of London. He is also director of the Corporate Accountability Network. After twenty years in industry and commerce, he co-founded the Tax Justice Network and Fair Tax Mark before taking his current positions. He co-authored the original...