By James Pinchbeck of Streets Chartered Accountants
‘We’re all in this together’ is an often-cited phrase, but never before has it been more true for the UK and business in general. Here, James Pinchbeck of Streets Chartered Accountants explains the steps businesses will need to consider to get back to a semblance of normal once the lockdown eventually ends.
For businesses and the self-employed, the last month or so has been focused on taking steps to manage business in a state of lockdown. For most, the impact has been a significant reduction, if not a total loss of revenue as many have been unable to avail themselves of goods and services. The exception, however, appears to be those that have been able to adapt or offer services or products online.
In these unprecedented times, it is unlikely that many business leaders have experience of dealing with such a situation. Economic downturns, recessions and even the financial crisis, which was more than ten years ago, may help people’s thinking or approach to managing the situation, but we are still aeons away from being able to learn the lessons that the current crisis is teaching us. As such, we have turned to the government for leadership, intervention and support both in terms of looking after the health and wellbeing of people, but also economic prosperity and individual livelihoods.
The last few weeks have undoubtedly seen most businesses focused on a mix of looking at possible ways of continuing some form of business activity, through getting to grips with various measures of support available to them.
With more than 70% of the UK’s workforce currently furloughed, most employees are likely to have been away from work for a period of time much longer than any typical amount of annual leave would normally allow. As such, they are likely to experience challenges around re-adjusting to work and getting back up to speed as well as perhaps having a need to understand the impact of COVID-19 on the business and its operation.
If an organisation has sought to manage its staffing through a combination of both furlough and reduced working hours, then it may need to consider the perhaps unintended and potentially negative consequence of such an approach in terms of staff morale. This is a situation that can be easily exacerbated if returning employers are phased back as opposed brought back all at once.
Employers will also need to consider the financial impact of employees transferring from furlough rates, back to their full pay. Lockdown and changes in working practices required to deal with the situation may have led to situations where employers find employees roles have changed and therefore could give rise to the need to reskill or change roles.
This change in circumstances may also trigger feelings of unrest and review among some, meaning while they do return to work, they might also be considering a career change or exploring other avenues.
Financing a reboot, the business going forward
Looking to finance, the ability for businesses to start to get back up to speed will be as much dependent upon its financial viability and working capital situation as when we entered lockdown as it does when it is eventually lifted.
It has been widely reported in the media that businesses have in the region of three months of working capital. Beyond this period, many would start to struggle and face financial vulnerabilities. Undoubtedly, the CJRS grant should have eased this situation but creditors will have had to have been paid along with fixed overheads. For those able to continue to trade there will also have been additional, unexpected costs related to adapting.
Right now, objectives on file are likely to be different from a very different-looking pre-lockdown situation. The focus must now be on driving cash into the business, re-establishing the customer base, improving profitability, developing new and or more efficient ways of doing business, or instigating new working practices based on lockdown working. The danger is that some businesses will perhaps start to reopen based on the ‘factory reset’ model, wrongly assuming that everything will simply start work again as it did previously.
In terms of addressing the need to ensure finances are in place to take the business forward, many will have started this as part of good practice or as part of an application for support via the Coronavirus Business Interruption Loan Scheme.
The real test here is ensuring that the business has sufficient working capital and the most appropriate funding model to sustain a steady return. The great risk for many is that whilst they have managed to stay afloat in the downturn, they don’t have the financial wherewithal or collateral to trade through the other side and maintain profitability.
Looking to longer-term and the new order or new norm
Much of what has been covered looks at the transition from lockdown to a return to normality. The term normality has been used as opposed to the norm because it is widely claimed that the impact of COVID-19 is unlikely to lead to a return to the world as we knew it. COVID-19 certainly has been unprecedented in terms of its impact on the whole world.
It has and will continue to shape all our thinking especially around the way we live our lives and what is important to us as a consequence businesses will need to consider the longer-term impact whether it is actually around there very existence and role, through to how they operate and conduct themselves.
This is in addition to a growing appreciation and awareness of the impact of how we live our lives and the impact we have on the world. Those businesses and employers that recognise this and seize the opportunity to change and adapt no doubt will benefit greater than those who simply continue what they have always done. This runs the risk of becoming further and further behind the curve, which ultimately is something none of us wants to see.