Navigating coronavirus: Advice on cashflow and managing costs

Businesses are facing unprecedented pressures as coronavirus leaves them facing falling revenues, diminished profits and a pending cash crunch.

*The Caterer *has asked experts from AlixPartners and Colliers to give their advice for surviving the downturn.

Craig Rachel, from AlixPartners' leisure team:

Managing cash:

The immediate operational focus of businesses must shift away from profit and loss and towards cash management on a granular basis. Development of a short-term cash flow process is critical to identify any potential pinch points – with action plans developed – in advance.

If sales are declining in the short term, there is also a need to manage staffing and the availability of products and menu items to temporarily rationalise costs. This may include running skeleton staff or reduced menus (whilst minimising impact on customer service) or closing certain sites and redirecting customers to a reduced estate for a limited time.

Negotiations with suppliers:

Often a major lever for managing cash is delaying payment to suppliers, but this is not without risk. Suppliers to the sector will also be nervous, so an ongoing dialogue is key to avoid any break of service if payment is not received as expected. Understanding your leverage position is critical – if you can provide certainty over future purchases and timing of payments by explaining the mutually beneficial mitigation plans in place you may be able to secure a short term cash boost, whilst the supplier can plan for the future. Discussions with landlords regarding a short term move to monthly rents, or discussions with HMRC regarding timing of upcoming payment dates – if handled correctly – could also provide additional cash headroom.

Financial stakeholders:

A ‘no surprises’ approach to financial stakeholders is critical. Honest, open and regular engagement will reassure them that your business is under control and that proactive steps are being taken to mitigate the risks. Most lenders do not receive regular management information, so are working in the absence of information of the impact of the current crisis. In our experience, the banks are far more receptive to early discussions which enable them to agree a mutually beneficial action plan, rather than a last-minute request for rescue financing.

If the position becomes untenable, you should take advice from your legal advisors to understand your director’s responsibilities and appropriate next steps. Given the significant levels of uncertainty in the market regarding the potential duration and impact of COVID-19, we would recommend constructing a contingency plan at an early stage for the adverse scenario as a fall-back position.

John Webber, Head of Rating, Colliers International

My initial reaction to the business rates suspension was that it is good news but at the moment it is subject to European State Aid rules, which limit aid to €200,000 over a three-year rolling period, so the suspension will only be applicable to SMEs. I think businesses at the moment need to make a commercial decision about whether they’re worried about meeting the state aid limit or they’re worried about keeping afloat.

Because the rateable value (RV) is tied in with rental values, very few properties within the M25 will benefit – shops in small secondary parades might benefit but even a small kiosk in London will have a higher rateable value. Outside of London, for example in market towns, a RV of £51,000 is around the equivalent of a lock-up shop. Only smaller properties in the south-east and more reasonably sized sites in more rural areas will benefit.

I would advise businesses with a RV between £51,000 - £60,000 to submit an appeal on their rating assessment now and, if I had a portfolio of properties, I would be instructing my rating surveyor to submit appeals on every site, on the grounds of a reduction in footfall and turnover. If successful, the benefit will far outweigh the cost - because we are in the rating cycle 1 April 2017 to 31 March 2021, a rate reduction would be back-dated three years. After 31 March 2021, the new cycle begins so the opportunity to back-date will disappear. This is the case in England and Wales – Scotland has different rules.

While the number of appeals in the system is relatively small, the success rate of reductions is very high. Mistakes in rateable values come down to a reduction in funding and manpower and, often, lists are compiled from turnovers and rents that are outdated, based on neighbouring properties or rely on architect drawings, along with physical mistakes such as measuring spaces incorrectly or wrongly identifying areas.

Because the business rates bill is the third largest cost after rent and staff and within the government’s control, we are asking for a three-month deferral scheme for all businesses to help them through the unpleasantness of this current situation and I would urge operators to contact their trade bodies about this.