Liquidity remains the key to re-opening for business

SHELLY ANN MOHAMMED, head of ACCA Caribbean

With the course out of economic lockdown currently being implemented for many Caribbean countries, business continuity plans across a range of sectors have come into sharp focus. For businesses there is no blueprint for the unique issues they face in reinstating temporarily shelved production lines and products, unused services, empty offices and outlets, and retained but unusable staff.

Despite this, many Caribbean businesses are preparing as best they can with 60 per cent confirming they have plans in place according to research from the Association of Chartered Certified Accountants (ACCA). Many businesses will remain closed for a long period of time within respective governments’ phased roadmap and sadly some will never reopen. But those businesses that are reopening in the coming weeks, need to be fine tuning their plans now. This research reaffirms that planning for and implementation of an appropriate level of liquidity will be crucial in defining the success of businesses recovery post covid19.

Businesses must have a flexible plan in place to address the evolving demands on their cash flow throughout the reopening period, taking into account how much they will require, when they require it and where it will come from. All of this must be underpinned by forensic analysis of managing expected receipts and payments inclusive of an estimation of error. The strategy for commercial revenue will vary significantly depending on the sector, size and product or service that the business provides, however there are many aspects of financial planning in these unprecedented circumstances that all businesses will need to consider.

Any support schemes to assist the restart will have their own terms and conditions and application process. Rates rebates will need to be requested; credit support applications may need to be submitted; credit guaranteed bank funding applied for and other state agencies contacted. All of these applications must be accompanied by financial statements or management accounts and business plans and projections.

All of these much needed interventions require planning and paperwork to be expedited as there will be administrative and red tape impediments beyond the control of firms. Businesses could be open within a week, yet it may take much longer to get access to the cash that the reopening will require.

Depending on the nature of the cash cycle in the business, some businesses could need as much as three times their first month’s sales in upfront working capital and once again this process takes time, so seeking all avenues to maintain cash reserves will be key. Asking for an extension with creditors or negotiating reductions in outstanding debts may help. However, this works both ways and debtors can also seek an extension on credit. During the last recession, several businesses sought a reduction in their debts claiming inability to pay when in fact they were well able to do so. A business should never accept a debt settlement arrangement with a customer without undertaking their own due diligence. It should ask for up to date financial statements and only negotiate with an insolvency practitioner acting on the business’ behalf.

There is also no avoiding that the impact that this crisis will have on companies and organisations’ credit and cash flow will result in a very human cost to some employees. And with layoffs come HR and redundancy issues, which businesses will need to factor into their management and financial plans.

All of this highlights the pressing challenges that businesses face both financially, operationally and indeed emotionally. Planning, diligence, resilience, courage and good financial management will enable the majority to navigate through this unchartered territory.

The good news is that our research tells us that many businesses have good planning in place. Businesses would like to see a sustained recovery without trading interruptions, but that is one of the less likely scenarios; at least until a vaccine is available. Any good military historian will tell you that most military plans do not survive first contact with the enemy; many business plans will find a similar fate when the business first reopens. Managements need the agility to adapt and change and they need to have a business plan that has sufficient flexibility and robustness to cope with the new business environment whatever that may bring.

(Content courtesy ACCA)