As managers reset the business for recovery, companies need to adopt a lean culture where expenditure is minimised and every cost is questioned.

One of the greatest risks facing many businesses in the current environment is running out of cash. A company that can’t pay its bills, regardless of how profitable it is, will quickly go out of business. Cash conservation is therefore key to survival.

While in the medium to longer term companies will have to look at reengineering their business and operational models in order to meet challenges presented by the post-Covid-19 world, the short term is going to see a focus on cash according to Business Financial Consultant Brendan Binchy.

“There is much more urgency relating to cash now,” he says. “And there are many things a business can do to manage its cash. Almost everyone out there is availing of debt payment deferrals, for example. They are trying to hit the pause button on cash going out wherever they can so that they can preserve the status quo as much as possible. They are also looking at other areas like aged debtors. You almost have to look at it like a company threatened in a pre-receivership condition.”

Binchy recommends a structured approach to cash conservation and this starts with the balance sheet. “The profit and loss account is a record of a business over a period of time, but the balance sheet gives a snapshot of the business at a particular moment in time.”

Companies should pay particular attention to their gearing, he advises. This is the ratio of debt to equity on the balance sheet. “The lower it is the better, but losses will erode equity and increase the gearing ratio,” Binchy continues.

A healthy gearing ratio will allow companies to borrow judiciously in order to bolster their cash position. “This can be very helpful, but companies need to be aware of the associated debt service costs.”

The next step is to look at asset funding, where they may be scope for some reverse engineering. “Businesses frequently purchase assets for cash during good times,” Binchy notes. “They could be re-financed now with bank debt and this will improve the cash position. Generally speaking, the asset lifetime and the funding cycle should be the same. It is important to remember that trade debt, like invoice financing, is for working capital not capital expenditure.”

The sales lead to cash cycle is the next area for examining.

“It takes time for marketing effort to translate into sales leads, buying decisions, billing, and cash collection”, Binchy explains.

 “This can be quite protracted, and companies need to look for ways to get to close sales quickly and speed up invoicing.”

The supply chain should also come in for attention to slow the outward flow of cash. “Companies should identify strategic supplier relationships, tighten stock management overall, improve workflows, and negotiate new arrangements such as stockholding facilities with key suppliers. Talking to key suppliers and developing strategic partnerships is a very good ongoing strategy for companies. The more they do it the better.”

And then there are what Binchy calls the common-sense measures.

“Defer capital expenditure and other spending decisions wherever possible,” he advises. “Companies need to adopt a mean and lean culture where expenditure is minimised, and every cost is questioned. But this must come from the top down and everyone must share the pain and to be seen to share it.” 

Once those actions have been taken, it is time to put together a budget plan. “Having these measures in place means you already have your fingers on the pulse and you can make a budget plan to take you from where the business was before the crisis to what’s likely to happen afterwards. The most important thing about the plan is that it should be iterative. You’re not going to get everything right first time around. The plan gives you a framework to forecast and plan for what might happen. You can adjust it weekly and monthly rather than having to build new plans all the time.”

And businesses don’t have to do this on their own. Binchy recommends the Enterprise Ireland Lean Business Continuity Voucher as a good starting point. This offers eligible companies up to €2,500 in training or advisory services to help them identify and implement the measures needed to ensure they can continue to operate during the Covid-19 pandemic.

There is also the Covid-19 Business Financial Planning Grant, which is worth up to €5,000, and can be used by companies to pay up to 100% of the cost of engaging an approved financial consultant to assist them prepare a financial plan, understand their immediate financial position, manage costs and identify their funding requirement.

When it comes to cash for the business, Binchy points to the Temporary Covid-19 Wage Subsidy which he says has been very helpful to businesses throughout the country.

Sources of working capital and loan finance include the €450 million Covid-19 Working Capital Loan Fund and the €200 million Future Growth Loan Scheme fund available through the Strategic Banking Corporation of Ireland. Businesses which have difficulty accessing bank finance can apply for funding of up to €800,000 from the Enterprise Ireland Sustaining Enterprise Funds. There is also a fund for smaller companies which offers funding of up to €25,000 and €50,000 depending on the size of the business.

Hear from financial expert, Brendan Binchy and Enterprise Ireland’s finance team in our Accessing Liquidity & Managing Cashflow webinar.

The global economic crisis triggered by the Covid-19 pandemic is unlike any seen before in history in terms of the rapidity of its onset and its scale. It has been variously referred to as a black swan event or as a perfect storm, and for individual businesses worldwide its effects have included state- mandated shutdowns, a near total collapse in demand and, for the lucky, an enforced shift to new ways of working and business models.

As Ireland begins its first tentative steps towards a return to something approaching normality, businesses too must start planning their pathway to recovery and beyond. According to Business Transition Consultant Brendan Binchy, the first step for business owners is to analyse the company’s current position and develop a vision for the future.

He advises people not to panic. “It’s not a question of asking if the crisis will impact on the business and worrying about that,” he says. “It is self-evident that it will impact. You have to be proactive, not reactive. You might know how it will affect the business this year, but what about next year? Where do you want to be then? You need a to have vision for that. And from there you can work out what to do and what not to do and what you need to change.”

There are also actions which need to be taken immediately to stabilise the business. In Binchy’s view, these actions require businesses to examine and reset their business models, develop and implement very tight cash management strategies, and adapt and modify their operations to meet the new conditions in which they find themselves.

“You have to look at where you are financially, ask where your customers are coming from and why they buy from you, and if it is possible to recalibrate the business, to come up with a new model which will see it through the current period,” he advises.

That might be termed the firefighting or survival phase. The next stage is to plan for recovery and beyond. While planning in such times of massive uncertainty may seem an impossible or even futile task, Binchy believes it is worthwhile and an absolute necessity.

But the plan must be flexible and adaptive in order to deal with sudden changes in a highly dynamic environment. “We have to accept that what we think will happen may not come about. But if you don’t have a flight plan, you have no way of getting to your destination. When you’re up in the air you need to know where you’re going. You may get knocked off course from time to time and you will need to adjust the plan in response.”

Even the process of putting the plan together can be helpful, he notes. “It is cathartic and helps clarify things.”

This clarity comes from the examination of the business and its environment. Questions Binchy puts include:

• Is your industry shut down or is it still working?
• Are there opportunities there?
• What has been the impact of the crisis on customers?
• Do they still have money?
• Do they still need your products or services?
• Are there customers you no longer need?
• What has been the impact on competitors?

Fortunately, there is help out there both to develop plans and implement them.

He points to the Enterprise Ireland Covid-19 Business Financial Planning Grant as a very important support. The grant, worth up to €5,000, can be used by companies to pay up to 100% of the cost of engaging an approved financial consultant. The consultant will work with the company to prepare a robust financial and business plan that identifies the funding needs and the potential sources of this funding.  

Another valuable support Binchy advises businesses to take note of is the Lean Business Continuity Voucher, which offers eligible companies up to €2,500 in vouchers for training or advisory services to help them identify and implement the measures needed to ensure they can continue to operate safely during the Covid-19 pandemic.

Support for the implementation of the plan is there in the form of the Enterprise Ireland Sustaining Enterprise Fund, which offers funding of up to €800,000. Very importantly, no repayments are required for the first three years of the five-year term of the advance and there is an annual administration fee of just 4%, making it a very attractive source of finance.

Smaller businesses can also apply for advances of up to €50,000 depending on their size under the Sustaining Enterprise Fund – Small Enterprise scheme.

“Businesses can also look to shareholders to put in new capital or go to the banks,”, Binchy concludes. “The important thing is to develop a plan and have the finance in place to implement it.”

Watch our webinar addressing the critical challenges facing Covid-19 impacted businesses – Accessing liquidity and managing cashflow.

Get advice from financial expert, Brendan Binchy on how best to navigate these issues and hear from Enterprise Ireland’s finance team on the financial supports available from Enterprise Ireland.