Financial solutions in a time of crisis

feature-Financial-solutions-in-a-time-of-crisis

Like any good debater I’m going to define my topic as “solutions” meaning what we need to do, financial is what it is and “a time of crisis” is now.

The first thing we all must do is communicate. If we are suffering or in distress no one can do anything about it unless we share it. What has happened across the world in a matter of weeks is really unparalleled since the 1930s. Put simply; there are circumstances beyond the control of anyone.

The second thing is we must all look to the long-term if we want our business to emerge healthy from this.

It is extremely important that you keep your lender(s) informed and keep them on your side. Most of the time, they are willing to work with you and will give you a ‘grace’ period on your loan facilities, depending on your situation. Do not leave it to the last minute or try and arrange assistance after you have defaulted or missed payments. This will just make things harder for the lender to approve a hardship case for you.

This is going to take some time

Based on the experience of businesses in China we can expect to be running our lives and our businesses from home at least 6 to 8 weeks. These will be challenging and testing days not only amongst our team, clients, suppliers but most importantly with our friends and those that love us. As leaders we need see the light at the end of the tunnel and build strong business relationships. We need to show courage but have empathy.

We need to recognise all people feel vulnerable and frustrated they are looking for relationships not just at a business level but it a personal level.

We need find the time to show that individuals matter and we care. Frankly, as Deepak Chopra put it “We are all on the same boat travelling through these uncharted waters together”.

We need to recognise the level of concern varies between people. It ranges from deep concern to just short of reckless indifference.

Regardless of our personal views, however, across the world governments are setting minimum standards which we must adhere to.

Lessons

Whilst many companies had disaster recovery plans (DRP’s) and/or business continuity plans (BCP’s) few, if any, have plans which covered months. Few companies have the cash available to run their businesses as usual for say three months with little or no incoming cash flow.

No doubt business leaders will find themselves trying to work smarter but having to work longer and harder as they communicate the message of “steady as she goes”. Like the proverbial duck they will be paddling especially hard in the communications department. We must remain calm, at least on the outside, be available and respond to questions sincerely and truthfully.

I think we need make a list of the people we need to trust and talk to. My list is:

  • our team
  • our accountant
  • our bookkeeper
  • our solicitor
  • our credit broker
  • our contractors
  • the landlord
  • my personal bank
  • the company’s bank
  • the parties we work with
  • our social media consultants
  • our five key clients
  • our five best prospective clients
  • our five top suppliers
  • the Chamber of Commerce who is our industrial adviser
  • our trade associations especially those with international links.

Based on the announcements of government we need to add:

  • the tax office
  • ASIC
  • be prepared to joint venture with party sometimes you consider a competitor.

Each of us needs to look at our own and our company circumstances and work out what we can do. We need to see what revenue is and may be coming in and review our budgets for what must and what should go out. For those of us with staff we need to be honest and realistic about what is happening and our ability to pay them now and for the next six months. This honesty applies to our other suppliers including landlords and banks. This honesty does not mean people are going to give you what you want and unless you communicate with them, you’ll never know. You need to speak to people before you need their help specifically before you get behind in payments.

One of our clients told his landlords for over 60 retail operations across Australia that the company can no longer afford the rents but he is prepared to pay 10% of turnover as rent. The representatives of landlords, real estate agents and lawyers will often look to the clauses of the contract and tell you well the directors are personally liable or do not worry about that will simply put the company into liquidation. I am expecting that, at least in Australia, a number of safe harbours will be created, to reflect the policy announced by the government and to ensure as many jobs are kept and/or created in the foreseeable future in the small business sector. Government is deeply aware how important the small business sector is the generation of jobs and that these jobs create more jobs by consumption.

We are seeing a number of suppliers sending out notices to our clients reminding them that they have strict payment terms and there are unwilling to discuss these. One supplier in their reminder letter advised that they had the right foot the company into liquidation and sue the directors. Whilst this may be technically true given the recent announcements by governments federal and state, it is clearly inconsistent with public policy and given that much of the court process is stopped because of social distancing rules is unlikely to be enforced. In summary it needs to be read for what it is: bullying.

There is no doubt that the receivers and liquidators will be busy; I suspect their focus will be on middle size businesses which already have issues. I also suspect that the courts are going to be reluctant to enter into a wholesale closure of small businesses with a resulting immediate impact on employment and the property market. No one wants to see a repeat of the GFC let alone it occurring on a much grander scale. 

Many small firms are seriously looking at the number of staff and the question how to manage them. We all know how difficult it is to get and keep good people. I thought the reaction of Qantas was perfectly reasonable given all the facts. Effectively, the airline can’t fly, so most of the staff are not needed, it’s an ideal time for them to take leave but unfortunately, they may not be able to go where they had planned. The union’s response that the employer should pay this back is simply saying pay the people and create another accounting liability. When we come out of this people will want stable jobs.

In the current economic environment, and with currently available support schemes, most staff are happy to work with employers to ensure that all the team get some hours rather than some get none. It is communication.

Whilst we hearing a lot about staff being retrenched this is not cheap: departing staff need to be paid their entitlements, including untaken leave. Some staff look to balance sheet items and say the company must have the money but as most people know is invested elsewhere in the business and is generally illiquid. In times like these, large redundancy programs are generally a lose scenario. If employers need to reduce their workforce they do need to look to the relevant award and legal provisions, logically employers will look first to the staff who cost the least to let go. This means contractors and casuals. One of my friends told me tonight that not only had his daughter been retrenched but his wife had lost her job to. Unfortunately, this was not the first story I had been told normal the last.

However, what is logical is not necessarily commercial. At Projects RH we have two well-seasoned contractors who would not be easily replaced.

I suspect we will all be looking at our leases and hire purchase contracts. We need to be talking to our bank and other finance providers to see what they plan to do in the light of government announcements. I expect they will all be requiring us to pay to the end of March. When that happens, I am expecting there will be some clarity over what some of the government announcements actually mean. Clearly, the government is expecting a lot of the major banks and other financial institutions to follow their lead. Nevertheless, some parties will seek to use their position and bully clients. I think we’ll all get some abusive phone calls and some very stiff legal letters over the next six months.

What we need to do is to look for new business opportunities and perhaps revisit some things we have not particularly wanted to do in the past. I am not suggesting anybody do anything immoral or illegal but rather we may need to do some work we find unexciting rather than no work.

I suspect will also need to be very competitive in our pricing without being silly. We will need to be realistic about what the client can pay and where the market is. Second, I expect we will be asking for cash up front. My view is that clients who don’t pay or pay only on success treat you like a free option. At this point we need each other and they know we need to be paid too. Today I had a client call from overseas wanting me to do a piece of work over six months on a success only basis. This piece of work would require that I engaged an engineer probably for a year so I told them if they wanted that level of service, I would need to be paid otherwise we shouldn’t continue the conversation. Initially after telling me the third time that somehow, we do business I said to them “do you want to win?”. They said “yes!” Well then you need the right team and that team will need to be paid. Rather than terminate the conversation the CFO said to me “put it in a proposal and show us how it’s an investment”.

Conclusion

In each country, including Australia, governments have offered a series of relief packages. We need study the announcement and read the fine print. We need be careful not to take on more and more debt and whilst it may be interest-free for six months eventually it’s got to be paid back. The same is true of some tax incentives which really are simply a tax deferral.  This does not mean we should not take advantage of these opportunities but we should be conscious that we do not make it too difficult for us to grow when the economy picks up.

Equally, I think we need to talk to our clients. My local coffee shop told me today that the gym upstairs no longer has to pay rent as they have been closed by the government and that he can’t offer me a table and chairs but is still expected to pay $3000 a week in rent. He thanked me for buying a cup of coffee and urged me to come back soon.

All of us need to talk to our financial advisers whether they have that title or not. Not only are they seeing our business, they are seeing other businesses and know what they are doing.