I recommend breaking your Covid-19 action plan out into two distinct stages.
Stage One is the shutdown survival plan. Stage Two is planning for the difficult trading period in the six or 12-month period following re-opening.
My previous article focused on stage one – surviving the shutdown. The survival plan is primarily about micro-managing your cashflow during the shutdown period. It involves preparing week by week cashflow projections for the next eight or 10 weeks and taking all actions necessary to make sure you still have money in the bank at the end of each week.
For many, this will involve loan repayment holidays, delaying revenue payments, deferring some or all of the rent etc - basically, delaying as many of the outgoing cashflows as possible.
Don’t forget to focus also on getting cash into the business where possible – eg collect what money you can from debtors, push online sales and sell vouchers.
As part of the planning process you also need to look ahead. The day will come when the restrictions are lifted, and you can begin to trade again. While dealing with the full shutdown is difficult, dealing with the reopening period and the following six or 12 months will also be challenging. That is why it’s important to also plan for that critical period now.
The key to this is preparing detailed financial projections. The projections should include month by month revenue projections, a P+L (Profit and Loss) and cashflow projections – for 12 months following re-opening.
I recommend preparing both revenue projections and cashflow projections as these are not the same for many businesses; eg if you give credit to your customers or receive credit from your suppliers.
I recommend preparing these in Excel and building formulae into the projections so that when you change revenue projections, the file automatically changes the P+L and cashflows. You need to factor in plans for all of the payments that were deferred during the shutdown period – eg when will the deferred rent or Revenue be paid.
The financial projections will allow you to:
* Run scenarios based on different levels of sales – eg if sales for the first few months are at 50% of the pre-covid-19 levels, at 60% etc. For each scenario, review the profitability and importantly the cashflow projections.
* Identify and quantify funding gaps. I recommend looking at the worse case scenario and then applying for working capital loans for this worse case scenario. Get the loan facility agreed, so that you have the option to draw it down if you need it.
* Assess headcount requirements. If the business is operating at only 50% or 60% for the first few months following re-opening, do you need or can you afford to have all the staff back full time?
* Run scenarios based on different repayment plans for all the deferred payments. This will allow you to work out repayment plans that are sustainable.
Remember to factor in the cost of delivering the services/products that people use vouchers to pay for. Also, your business is likely to have some additional costs like face masks, hand sanitisers, thermometers to check for high temperatures in staff and customers.
These projections are not difficult to do, but if you are not familiar with them, it’s best to get support from your accountant or, if you are a small business, from an expert through the Local Enterprise Office (either through the Business Continuity Voucher or the Mentor Programme).
For many businesses, there will be a working capital funding gaps during that initial six to 12-month period. That is alright as long as the underlying profitability of the business is ok. It is important to identify any working capital shortfall now as this will give you time to prepare your loan application and for it to be approved.
There are some good Covid-19 specific working capital loan options available, depending the size of your business. Two of these are:
MicroFinance Ireland Covid-19 loans
This is open to any business (Sole Trader, Partnership or Limited Company) with less than 10 full time employees and an annual turnover of up to €2m.
Loans ranging from €5,000 – €50,000 are available under this scheme. The loan term is typically up to three years and the first six months are 0% interest & zero repayments.
The interest rate is also pretty good at 5.5% - but this is reduced further to 4.5% APR if you apply through the Local Enterprise Office.
There are no fees or hidden charges, the repayments are fixed, and there are no penalties for early repayment. All in all, this is a very good loan option for small businesses. Full details of qualifying criteria are available on the MFI website.
SBCI Covid-19 Working Capital Scheme
This is open to micro, small and medium sized enterprises (SMEs) that have less than 250 employees, a turnover of €50 million or less or €43 million or less on their balance sheet.
The business must be independent and autonomous (it must not be part of a wider group of enterprises). Loans from €25,000 up to €1.5 million (first €500,000 unsecured) are available with 4% maximum interest rate.
Applications are made on a two-stage process. Step one is to complete the Eligibility Application Form on the SBCI website to check if you are eligible for a loan under the Scheme.
Once you receive a letter of confirmation from the SBCI, you present this to one of the banks approved to operate the scheme (AIB, BOI and Ulster Bank) as part of the credit application process. Full details of qualifying criteria are available on the SBCI website.
Stage two planning also involves looking at non-financial issues.
Restrictions will be lifted gradually and the date your business is allowed to re-open will depend on the sector you operate in. For instance, it’s likely that pubs and restaurants will have to wait longer than shops to re-open.
Re-opening is likely to be conditional on the business being able to meet certain criteria – these are likely to include enforcing social distancing, the wearing of face masks, access to hand sanitisers for staff/customers, the ability to screen customers/staff using a thermometer for a high temperatures.
It is generally accepted that economies cannot remain on lockdown until there is a vaccine in place. Accordingly, the EU and US are all now turning their attention to what a feasible re-opening looks like in the absence of a vaccine. You need to keep a close eye on the media and on reputable online sources for guidance with regards to re-opening criteria. As soon as this becomes clear, start planning and putting the necessary processes in place.
Unfortunately, there is a long-way to go before the Covid-19 crisis is behind us. Investing time in planning your cashflow during the shutdown and planning for the difficult trading conditions following re-opening will make a difference to the fortunes of your business.