Unforeseeable, detrimental and hindsight bias are the three characteristics of a “Black Swan Event”, a phrase coined by former wall street trader Nassim Nicholas Taleb and very commonly used in the world of finance. Owing to the unpredictable and unprecedented disruption/ loss that the COVID 19 pandemic has caused to Governments and businesses worldwide, it certainly meets the criteria of a Black Swan Event.
But how your businesses will emerge at the end of this war in not only dependant on the legislative and economic factors but is also reliant on the responsiveness and preparedness of any organisation. Thus, it is imperative for companies to take the following steps immediately:
1. ASSESS THE CASH POSITION OF COMPANY
With the government restrictions imposed on the operations of various businesses, the old adage “cash is the king” has re-emerged. It has become all the more important to re-evaluate the cash flows and working capital needs of any business. Companies must update their cash flow forecasts to reassess their current situation. They will have to stress test such cash flow forecasts against multiple scenarios and reconsider the working capital their business requires for the weeks ahead.
2. MODEL FINACIAL IMPACT
The stress testing of cash flow forecasts and financial impact model against scenarios ranging from worst to best case scenarios will help the company understand the impact on profitability. This will further assist them in assessing whether it will be able to meet its debt covenants and determining when the available cash sources or credit facilities should be used.
3. DEFINE WHAT IS FUNDAMENTAL AND SACROSANCT
Companies will need to focus on products, services and customer segments that are core and critical to maintaining the cashflows requisite to keep businesses afloat. Further, companies should consider deferring unnecessary capital expenditures and other unwarranted spending wherever possible. While minimising such expenditures, they must follow a mean and lean culture.
4. ENGAGE WITH RELEVANT STAKEHOLDERS
Clear and transparent communications will have to be established with stakeholders like suppliers, employees, customers, regulatory authorities, creditors and investors. In circumstances where contractual obligations cannot be met due to temporary COVID 19 restrictions, companies should consider deferring payments by invoking “force majeure” clauses or re-negotiate the terms of the underlying contract with relevant stakeholders. This will help their business mitigate any future liabilities or punitive damages arising out of non-performance of contractual obligations.
5. GATHER FUNDING FIREPOWER FOR THE FORESEABLE FUTURE
By performing the above assessments and tasks, companies will be in a better position to ascertain their capital/funding needs. Based on the outcome, companies may consider alternative financing options like invoice discounting, working capital loans, factoring, trade finance, etc. This will help the company preserve its cash position and avoid unnecessary cash pressure.
6. AVAIL GOVERNMENT SUPPORT POLICIES
Companies should not hesitate to seek support of various financial and taxation related policies enacted by the Government in the wake of COVID 19. To list a few, it should consider availing supports like Temporary wage subsidy scheme (TWSS), waiver of commercial rate due to local authorities, Loan Repayment break or even applying for loans available under SBCI scheme or ISIF.
WHAT QUESTIONS DO YOU HAVE?
We are happy to help. Please contact our corporate finance department on 01 677 9000 who would be delighted to assist you. Alternatively, send us an email: info@cooneycarey.ie.
To keep in touch, connect with us
on LinkedIn.