A number of significant creditor protections established under the Corporate Insolvency and Governance Act are due to end in the coming months (see ‘timeline out of lockdown’ graphic, below) and lending options are expected to narrow, as existing government-backed loan schemes come to an end and are replaced by the less generous Recovery Loan Scheme, although full details are still to be announced.
Our experience of working with clients over the past few months is that there are four critical elements that all businesses should focus on and formulate a clear plan to address. We think of these like the wheels of a car – unless all four are in the best possible shape, even the most expensive and powerful vehicle won’t get anywhere…
Liquidity and cash
Interim liquidity will be the decisive factor in bridging through to the other side of the recovery, and with a significant build-up of unfulfilled holidays, a current healthy cash balance can be deceiving.
In particular, loyal customers are now getting tired of re-booking and are insisting on refunds, with the Competition and Markets Authority threatening court action and demanding more aggressive repayment schedules.
From conversations across the sector, we know that available liquidity is expected to decline rapidly as travel returns, with supplier payments coupled with other demands on cash, such as regulatory requirements and merchant service providers. Therefore it will be important to have a laser-like focus on liquidity, including the optimisation of working capital and identification of locked-in cash.
Once the external liquidity requirement has been established, it is critical to then ensure that the appropriate source of funding is obtained. Many businesses will have already successfully or unsuccessfully tried to secure funding, but now is the time to explore those options once again.
However, the strength and speed of recovery is impossible to predict and therefore it will be important to understand and present a range of eventualities. Carefully considering how and when you pursue the options on the table could save considerable time and ensure that value is maintained.
In addition to partnering with a suitable sponsor or lender, other stakeholders will want visibility on your funding plans and will almost certainly form part of the solution.
Operationality
In our most recent Annual UK CEO Survey, 70% of respondents said they plan to drive growth through operational efficiencies. Whilst many will have already implemented significant changes to plan for a ‘new normal’ and revised business strategy, a full cost based transformation could still reap benefits.
For many, revenue has been decimated over the last 12 months, but businesses can remain agile in order to take advantage of the recovery.
Stakeholder management
Clear and consistent communication with a wide group of internal and external stakeholders, including employees, suppliers, customers, lenders, shareholders, bonding providers, merchant service providers and regulators, has been essential during the crisis and could become even more challenging in the weeks and months to come.
Failing to manage key stakeholders could easily derail a business, and having advisors by your side will help give that confidence required. Remember that they will often have their own challenges and need to justify any actions with robust financial analysis and a compelling story.
Strategic mechanisms
What legislative and strategic mechanisms are open to you to see you through the crisis and beyond? Could an acquisition or divestment be the answer? Business leaders need to think strategically and medium-term, even as the immediate crisis rages.
These four elements are equally vital to survival and recovery and need to be managed simultaneously; a business could do three out of four exceptionally well but still fail if it doesn’t adequately address the fourth. Or to put it another way: If just one wheel comes off, the journey ahead will be a bumpy one.
