Coronavirus has completely changed how organisations function, especially with major businesses closing down. The whole economy is disrupted, and the future also is uncertain. Jobs are also very uncertain as most industries have stopped hiring. Most airlines companies and hotels are the worst hit.
In this scenario, what are the steps that are advisable and need to be taken up by businesses? As a Chartered Accountant and practising professional, here is a summary of how to manage the current times and remain financially fit for the future.
How to keep business running during the lockdown
Priority 1 | You need to be healthy first
This is the first step for any person who is running any organisation. Always remember, it’s not just for one person; the whole world is going through the same problem.
Priority 2 | Financial Operations
Make a robust financial action plan.
Rationalise people cost, be honest. Knowing the team you will require in the future and how they can be rationalised is essential for you to stand your business again on the feet.
Cash flows – Consolidate cash flows or expand credit lines – ensure life-blood is flowing. If you can manage adequate cash flows, it will help in the survival of the organisation.
Short Term Operating Plan – Prepare a realistic cash flow plan for the next three months. It has to be practical and cash-based. If you can survive the next three months, it will be easy for you to stand firm.
Capacities- Review capacities across the organisation. Re-prioritise initiatives and renegotiate vendor costs/payments. Try to take max credits as markets will be offering the credits.
Prepare for the future – Build capability, create sustained marketing, and be ready to grow.
Priority 3 | Understand Government actions and initiatives
The government has announced various schemes which need to be validated and understood also. Understanding these government initiatives will be helpful:
GST / TDS Postponement –Take advantage of the postponement. Hoard cash as a safety net and don’t spend it. It still needs to be paid.
Refunds – Go after old refunds of IT / GST. Do whatever it takes to receive the money-back from the government. Aggressive follow-up is needed and go for lower deduction of tax wherever applicable.
MSME loans – Explore MSME facilities aggressively. Even if there is capital adequacy, hoard cash for the next 2-4 months. Government is likely to offer low-interest loans through banks. See SIDBI plan for start-ups.
Provident Fund (PF / ESI) – Government has come with various schemes regarding PF. To help the salaried class tide over the economic crisis during the shutdown, the Employees’ Provident Fund Organisation (EPFO) has given reason during the highly-contagious pandemic to allow subscribers to withdraw funds. The labour ministry issued a notification amending the EPF withdrawal rules in which all its six crore subscribers are allowed a non-refundable advance during the coronavirus pandemic. The withdrawal amount cannot be more than your basic salary and dearness allowance (DA) for three months or up to 75% of your PF account balance, whichever is lower.
Things to do:
Innovation – Start thinking of new customer needs post lockdown. Start working on them. Create IP assets (Intellectual property rights)to address that during the slowdown.
Protect talent – Engage with employees. Retain critical talent, and build capabilities. Knowledge, technology, and alternative revenue streams. Now, its time to understand what’s critical for you and what you can live without.
Multi-tasking capabilities – Encourage staff to be capable and train them to do multi-tasking. One person should always have the skills to do multiple activities and also skills to do other activities. You should have experts and also people to switch into other roles faster
Negotiate – Services may be available at discount – Take advantage where possible. Check if partnerships and collaborations can be struck during this time since everyone is vulnerable.
Marketing re-thinking – Engage continuously with customers. Spend on this if needed. Be creative. Build a brand, make use discounted marketing.
Rethink the cost structure– Costing and expense management is the key. Use work from home and recast infra requirements. Most of the costs are expensive and there needs to be a shift towards cloud-based infrastructure. Variabilise costs where possible, even salary costs can be broken into fixed and variable salary. Try to bring more into variable costs. Use the cloud services to reduce your server and all other expense costs
Priority 4 | Cash is King and needs to be well managed
Cash Flow Plans
- Focus on collections – Review all contracts, bill everything including Overtime and Reimbursements in time.
- Collect receivables
- Ensure all invoices are sent in time – credit terms are likely to get extended or impacted as customers shall be seeking time. Hence, you should become more efficient and send the Invoice before or on time.
Renegotiate Rent terms – Check if landlords are agreeing for waivers, discounts or deferrals of rent. Some states have mentioned as a policy to waive rents. Ask for “Act of God” waiver on rents – PVR / Reliance are doing it. PVR Cinemas, India’s largest multiplex chain with more than 870 screens, has decided to inform malls and landlords t that they would be invoking ‘force majeure’ clause in its rental contracts and shall not be paying rents to the malls and buildings.
Moratoriums or return of deposits- needs to be spoken to with landlords. Offer extension of lease terms needs to be demanded
Conserve capital and discretionary spends– Drop/Postpone peripheral product developments or capital investments
Sell under-utilised assets, Conserve cash. If you have spare assets which are not in use, better to sell them and have more liquidity with you
Be careful on Shares/ stock markets – Markets are volatile and are fluctuating very widely. It’s very speculative to invest in the market and quite risky too. Better be careful.
Eliminate discretionary spends. The unnecessary spends need to be avoided.
Review the P&Ls – many hidden wastages needs to be validated and eliminated. Check your expenses and see if there are any spends which can be avoided and are not required, do not incur them.
Main Objective – Crisis management
The important thing is to be prepared, remain positive, show empathy towards others especially people who cannot afford things and professionally remain active and alert. Things will change for sure and the good times are bound to come again. These are once in a lifetime situation and it’s a crisis for everyone since the complete global economic cycle is disrupted. We all need to manage this crisis with a positive mindset and attitude.