In 2008, businesses faced a crisis from the ‘credit crunch’. In 2020, credit is not in short supply – it’s sales that are vanishing.
Small businesses have been overcome by the speed with which the health crisis has accelerated in the last week.
As social distancing, self-isolation and working from home have become the new normal, companies have seen sales revenues disappear. AAT licensed accountants reported at the beginning of the week that clients were already making employees redundant.
The Small Business Commissioner is an independent body established by the Government to fight poor payment practices on behalf of small business. This week Commissioner Philip King – a veteran of the credit-control industry – went on the front foot to advise small businesses on how to increase their chances of survival.
1. Have a plan – identify funding gaps
The number one measure is to assess the current position. Most small businesses hide their heads in the sand.
“The first thing is to look ahead and see what’s coming in and what’s going out. If the owners know they are going to run out of money, they can react to it early by having conversations to manage the situation. The plan doesn’t have to be elaborate – it doesn’t need costly software. The essentials literally can be written on the back of a cigarette packet.”
2. Identify the major creditors – get them onside
Which creditors and suppliers are critical to the business? Rent and employment are generally the two highest costs, and they can cripple businesses.
For example, AAT was told of a small dance studio that would receive a business rate rebate under the Chancellor’s scheme. It has lost most of its customers, but the rebate will barely cover a month’s rent, placing it under extreme pressure.
“If a landlord is faced with the prospect of having to wait a month or two or having to find a completely new tenant at a time when businesses don’t want to move, it could well be better for them to take a payment holiday or accept reduced payment.
“If you can tell your creditor, we are perfectly solvent, apart from this exceptional circumstance, that is a much more compelling case than just asking for more time to pay.”
3. Show the business is viable
When dealing with creditors or financiers, have a business plan that shows – aside from the crisis – the business is sustainable.
“Take AAT’s example of the dance studio, if [in normal times] you have full classes three times a week, and those are booked a term advance, you can show you have steady cash flow as soon as you can re-open those classes, then that’s a very different proposition to someone who offers to open a coffee shop because they hope it might work, but they’re not sure.
“A business plan [to show this] doesn’t need to be sophisticated, it just needs to be realistic and reflect what is going out and what’s coming in.
4. Talk to debtors, accelerate payments
Don’t just rely on payments arriving – talk to customers to check they are coming through the system. Identify problems upfront.
Ask for help. The mood is one of co-operation.
“Sometimes if a small business talks to its bigger customer and says it has a problem, the big company can help. There’s often nothing to stop payments being brought forward. The nub of it is talking, and talking early on.
“I have yet to talk to a large business that didn’t make the right noises about the need to support small business.”
5. Look for new ways of doing things
Look for ways to pivot or re-orientate the business.
“I saw a social media marketing company offering free 1-hour consultations to any business suffering issues from the coronavirus on how they can expand and do things they might not have thought. I thought that was interesting. They are frankly just trying to get more customers, but they are doing it in a way that might help those businesses as well.”
6. Look at alternative sources of funding
Small firms don’t think hard enough about potential sources of funds. They tend to focus on overdrafts, followed by credit card and friends and family.
“Small businesses need to look at the options out there. There is invoice financing, asset financing and fintech options. We need banks to help them explore what’s available [and not just point them to overdrafts].”
Are staff layoffs or redundancies necessary steps?
The Chancellor has told businesses “help is coming” and has appealed to them not to rush decisions. So should companies be making redundancies now?
“It’s tough times for business large and small. If you are business with 30 people, is it better to make five people redundant and survive than to go bust in six months’ time? I suggest it is. But it’s a tough call to make.
“It all comes back to doing the thinking. If your outgoings are fixed and they can’t be moved and the income is going to stop, at least you are making an informed decision. It’s not ideal. But it’s better than burying your head in the sand, which is more damaging.”
Is the Government’s £330 billion package enough?
“What’s encouraging me is the flexibility. Within a week we’ve gone from one package of measures to something much broader. It does suggest the Government is thinking on its feet. The one challenge is how that help gets out to businesses – making sure the banks are on board and sufficiently fleet of foot to make it happen.”
Will banks and businesses support each other?
“One of the notable things is the recognition from Government and business that it is a crisis for everybody, and we all need to work together.
“What we are seeing is a real wartime spirit, a let’s-pull-together attitude. We need to encourage that. I say collaborate, don’t complicate. We need to work together to support each other.
“The banks are making the right noises. They have to do the right thing to some extent. Like the landlords, if they can keep a business ticking over it’s better for them than letting if fold and losing the entire loan.”
AAT has campaigned for prompt payments, and for it to be mandatory for large companies to pay in 30 days. Is it time this happened?
“Yes, prompt payment should be a given.”
“If businesses aren’t being paid, then the Small Business Commissioner’s office is there to help. We can intervene with large businesses and so far we have obtained seven million pounds. We invite firms having problems to get in touch.”
Phillip King is Small Business Commissioner. Over 40 years, he has held senior credit management roles in the high-tech and communication sectors, in distribution and retail, including spells at Olivetti and Vodafone. He was appointed Director General of the Institute of Credit Management (ICM) in 2005, and later Chief Executive, and was behind the institute’s drive to become a chartered body (the CICM) in 2015.
David Nunn is Content Manager at AAT.
How to plan for continuity in the face of the coronavirus
The coronavirus (COVID-19) is spreading quickly and many businesses are likely to be affected in the coming months. Each accountancy practice will face unique challenges if they are affected by the virus.
Here is our guide to continuity planning in relation to the outbreak, how to help staff work effectively from home, and five points to consider when you are drawing up a strategy.
1. Assess your exposure
What is your current situation, and does your business have any contact with the most severely affected countries? You should be advising staff members to self-isolate if they have been to an affected country and/or are showing signs of the symptoms of coronavirus.
If the UK is forced into a total shutdown, what plans do you have in place to help your staff to continue working? If you are an owner/manager, what can you do to ensure the business continues to run smoothly if you are ill and forced to take time off?
“If employers have a staff member who has been advised to self-isolate, they would be best advised to allow that person to stay at home,” says Danielle Ayres, partner, and employment specialist at Gorvins Solicitors. “They not only have to think about the health and safety of that one individual but the rest of their employees too,” she says.
An employer can instruct an individual not to come into the workplace – the employee’s contract may contain an express provision that the employer can oblige them to stay out of the workplace (such as a garden leave clause), or if they have the health and safety of that individual or their workforce in mind.
2. Communicate with staff
Explain the sickness policy, emergency procedures, the measures you are taking to reduce risk, and what staff can do on a personal level to stay well. Let them know what your procedures are for sick pay, what the workplace healthcare plan covers, and how you will support them if they need to take time off to care for sick dependents.
“Any absence from work by an employee who self-isolates should be treated as any other type of sick leave,” says Danielle Ayres. “If an employer obliges the employee to self-isolate, this would be seen as a form of suspension from work, and in those circumstances, the employee would be entitled to receive their normal pay for any such period,” she says.
The only issue is the risk that an employee comes into work, even after being given medical advice to self-isolate, as they do not wish to lose out on pay. ACAS is, therefore, advising that it would be ‘good practice’ regardless of the party enforcing the self-isolation for the individual to receive normal pay during their absence.
“No matter how many employees the SME has, they should consider altering the workplace to take precaution,” says Lisa Townsend, Consultant Solicitor of Employment Law at Richard Nelson LLP. For example, including posters in bathrooms advising employees and visitors on how to correctly wash their hands, and offering hand sanitising stations to all who enter the building.
3. Review your remote working capabilities
Do you have the necessary IT infrastructure for all your staff to work remotely? It is time to review your data protection and IT security to check that your business is not exposed to data breaches, especially if employees use their own laptops or home networks.
It is important to try to keep staff motivated and productivity high. Employers should check to see if their employees are contracted for a minimum number of working hours per week and are fulfilling those working hours at home and are available to be contacted, says David Sheppard, a senior associate in Capital Law’s employment team.
As an employer, you will need to find ways to ensure productivity remains as close as it would in an office environment.
“Employers should also stress and remind employees of their data protection policies and the need to uphold these standards at home,” he says. There are several measures they can put in place to avoid security and data breaches.
These include ensuring that employees use private and secure wifi connections, that any personal and other confidential information stored on a device is encrypted, that paper documentation is stored securely in a locked cabinet when not in use, and that business telephone or video calls are taken in a quiet room or home office, away from other family members or residents.
4. Monitor government and global health advice
There are regular UK government updates on guidance within the UK and advice on travel from the FCO on places it recommends Britons do not visit. Make sure you are up to date on health and travel advice and communicate any new information to your staff.
Mini Setty, a partner in employment law at Langleys Solicitors, has the following recommendations for employers:
· send guidance to staff on the best ways to stop the spread of the virus
· provide tissues and hand sanitisers for staff to use
· monitor whether work-trips to areas hit by the virus should proceed
· ensure that anyone who comes back from an infected area does not come into work if they are symptomatic
· consider the safety issues of ‘high risk’ individuals such as the older people, those with underlying medical conditions and pregnant women.
5. Uphold your duty of care
Most employees usually only work from home for ad hoc short periods, such as childcare cover. But with the prospect of having a longer duration of home working as a result of the coronavirus, both employers and employees need to be aware of their legal obligations when working from home for prolonged periods, says David Sheppard.
Employers owe a duty of care to ensure their employees’ health, safety and welfare “so far as is reasonably practical”. Most home working is usually low-risk office-type jobs. Nevertheless, employers should ensure that appropriate risk assessments are conducted at the start of a homeworking arrangement and periodically thereafter.
Equipment and liability insurance
As with working in the office, employers might have to provide equipment as part of reasonable adjustments for employees with a disability when working at home, he says
In terms of insurance, employers will have compulsory employee liability insurance, protecting them from workplace accidents. They need to check these policies, to consider whether any extends to accidents occurring in the course of work undertaken at home and using equipment supplied to the employee.
If there is any gap in their insurance cover, employers should consider extending it, or request the employee to make their own home insurance arrangements to cover such risks and agree to meet any additional premium as an expense that can be reimbursed by the employer, he says.
Points to consider from Steve Thompson, Founder of Forward Role – a marketing, digital and technology recruitment agency.
· Think about what might happen if the outbreak gets worse.
· Identify any employees who may be at a higher risk from the virus and take extra steps to minimise their risk in the workplace.
· Communicate all of the health advice coming from the NHS on how to protect yourself and others from transmitting coronavirus.
· Ensure your tech is up to scratch to keep your business moving. Platforms that allow video conferencing, such as Skype, would offer an effective solution to canceled face-to-face meetings; even interviews could be held remotely.
· Can your team access the files they need with a remote connection to your server? Do they have the kit and internet capabilities to be able to set up a home office so they can keep working?
· Have an action plan in place to ensure you’re ready to adopt more cloud-based way of working, whatever level the outbreak might reach.
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Marianne Curphey is an award-winning financial writer and columnist, and author of the book How Money Works. She worked as City Editor at The Guardian, deputy editor of Guardian online, and has worked for The Times, Telegraph and BBC.