COVID-19: Planning your business for recovery

There are times to be spontaneous and times to plan.  A lasting memory for me from having small children is the frustration at how long it took us to get out the door to go anywhere due to the necessary planning. I’ve lost count of the number of times I didn’t follow my wife’s planning instincts and arrived at the park or similar with a coat-less or, on one occasion, shoe-less child.

With the Bank of England recently warning of a 14% contraction in the UK economy, I suspect we are going to find that lockdown, rather like parenting, is far more difficult to get out of than it was to get into. For anyone at the helm of a business, regardless of the sector or size, now is undoubtedly the time to plan.

While the disruption caused by the lockdown has been shockingly swift, disruption to a previously stable economy or industry brought about by a significant event in culture is not unprecedented.  Take for example the advent of the Internet which quickly birthed competition for the high street, changed how we access information and eventually gave us apps for practically everything, from banking to ordering a taxi. Any step-change in culture which brings about disruption is followed by corporate casualties.  I wonder however, how many of those casualties could have been be avoided with better planning and a greater willingness to adapt.

Many are saying we will never get back to 2019 normal; social distancing looks to be with us possibly into 2021 and flexible working has quickly become a minimum expectation from employees. It’s time to formulate your plan.

I suggest you start by answering these questions:

• Will the market my business operated in return to the same size? Do I anticipate new entrants into my sector seeking to take market share?
• Has the business been forced to diversify into new markets? Can this change be sustained?
• To what extent will social distancing change how the business used to operate – take into consideration experience of employees and customer?
• How resilient is the business to the anticipated downturn in the wider economy?
• For those who have taken advantage of the furlough scheme: if and when the scheme is withdrawn or reduced, can the business afford to bring employees back on?
• Can you see an opportunity to exploit the inevitable surge in redundancies? Do you need specific skill sets or talent?

The answers to these questions should make clear whether ‘Plan A’, to return the business to a similar pre-lockdown state, is possible or if it’s time to devise Plan B; perhaps a contracted or diversified version of the old business.

Which ever track you are on, I strongly recommend you forecast your cashflows for the coming 12 months, incorporating into your model as many scenarios and sensitivities as your Excel skills will allow.  When first preparing a financial model there’s one thing you know for sure; its wrong.  But a financial forecast is a live document which becomes increasingly valuable over time as you tweak your assumptions and dial in your sensitivities. Then as Boris slowly lets us in on his master-plan the future of your business whether good or bad will start coming into focus, giving you ample time to react.

Regrettably, there will be those who will quickly discover that neither Plan A nor Plan B are viable; Brexit uncertainty had used up much of the breathing space in the economy and COVID19 will prove to be a near fatal blow.  There is however a Plan C!

UK insolvency legislation is a world leader in its focus on rescue and turnaround. My restructuring partners and I are confident we will be helping many to formulate and execute Plan C over the coming months using the tools in the Insolvency Act to salvage viable businesses but for the lockdown rot.  Granted plan C is not an ideal outcome as there will be losers, but this is a less than ideal environment and we say rescue is better for many stakeholders than the alternative, and insolvency legislation agrees with us.

At Mercer & Hole our Corporate Restructuring team have a wealth of experience in helping rescue distressed businesses, as set out in our business rescue case studies.