Everything has changed. In both our personal and professional lives, Canadians have experienced a rapid shift in social and business protocols in recent weeks. As business owners attempt to remain up-to-date with the latest health and safety imperatives to prevent the spread of COVID-19, financial markets worldwide have struggled. Even assumptions that were previously considered to be “constant” have now become dynamic.
In response to the global pandemic, business have had to quickly pivot, with the concept of short-term planning shrinking to a three to four-month time frame. Changing market conditions call for alternative skill set requirements to navigate a business through the shoals of dramatic reduction in demand, while operating with an infrastructure and labour force suitable for normal times. Previously effective management techniques, strategies and expertise will require re-assessment and adjustment to respond to new conditions. Government agency announcements will continue to have wide-reaching effects on labour and capital investment decisions. As those announcements change frequently, planning remains a challenge 0 he fine print when it comes out can be quite different than public announcements.
The good news is that in many cases it will be possible to prevent corporate demise. But in order to protect enterprise Going Concern Value, business will need to commit to dynamic action plans that could entail cutbacks and shifts in scarce resources to combat change and maintain competitiveness. Above all, cash preservation is essential.
An effective action plan is one designed to reduce variable and fixed overheads, negotiate interest and debt payments, seek government support where available, and work with suppliers and customers for capital preservation. The speed with which one identifies and reacts to changing circumstances will determine future viability, so it’s critical to develop and implement a plan that will take action today.
The Zeifmans team suggests that your immediate COVID-19 business action plan should include the following components:
Revenue and cash collection
It is important to determine your cash position and revenue collection processes. The ability to hone your negotiation and communication skills will become paramount in business survival. Remember that “Cash is King”, in times of crisis. Though it may feel uncomfortable socially, we recommend that you proceed aggressively in contacting customers as frequently as required to maintain or improve your cash collection trend. Keep in mind: Your customers are experiencing the same adverse events, and therefore you should make sure you’re front of mind as customers deal with a barrage of calls from other suppliers. Develop a short-term budget and cash-flow forecast to assess your requirements as an aid in the execution of the plan.
Review cost structure and ensure that only critical costs are approved in the short term. Expenditures that are not critical for product manufacturing or the sale of services should be deferred until a later time. This may include research and development, marketing expenditures, personal expenditures, memberships, dues, subscriptions and capital acquisitions.
Review inventory levels, aiming to decrease purchasing and improve optimization. Just in Time strategies (“JIT”) for purchasing may be the best option in the coming months. Cost of lease premises should be thoroughly studied in preparation for negotiations with landlords to propose rate reductions, abatements, deferrals and space optimization. Where possible, contact lessors of equipment and vehicles to obtain deferrals or lease cancellations. Rationalize variable costs such as logistics, utilities usages and repairs and maintenance. Review your workforce for potential redundant employees in the short term and consult with employment lawyers to discuss a layoff plan. In the coming weeks, government programs will continue to be introduced, and should be thoroughly considered. It’s important to project confidence in communicating with remaining employees, share aspects of the plan and hold frequent updates.
The goal of working capital management is to ensure that a firm is able to continue its operations and has sufficient resources to satisfy both short-term debt and upcoming operational expenses. As previously noted, we recommend developing a short-term budget and cash-flow forecast to assess your requirements as an aid in the execution of your plan. Meet with your bank to discuss your action plan. As them about deferral of debt payments and interest rate reductions for a specified period. Free and clear assets can be used in leverage transactions for additional financing. Sell redundant and unnecessary assets and reevaluate the necessity to pay dividends. Most importantly reestablish control of the cheque book so that only necessary payments are made.
Government Assistance Options
The Federal Government recently announced an economic stimulus plan to support individuals and businesses. It is crucial to evaluate all points of the stimulus plan provided today as well as to follow all future announcements. Below are a few notable highlights:
- The government is proposing to provide a COVID-19 eligible small employers a temporary wage subsidy for a period of three months. The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration. Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.
- The government introduced an employer-paid top up to EI benefits program. The program allows employees to claim EI benefits while the employer pays a top up to the employee.
- The availability of work-share plans and the conditions should be reviewed. This plan is designed to allow an employer to reduce the hours of work for a group of employees and divide the hours between them as shared. Employees can then collect EI benefits for the lost hours and collect pay for the reduced hours of work.
- BDC and EDC are cooperating with private sector lenders to coordinate on $10B in credit solutions for individual businesses. The federal government is set to provide additional support to Canadian companies through loans, guarantees or insurance policies. As an example, BDC will be releasing a COVID-19 working Capital Support Initiative for Canadian entrepreneurs.
- Chartered banks are moving to help customers and allow deferral of mortgage payments; The Bank of Canada has cut the interest rate to 0.75%.
- Businesses and individuals may defer, until after August 31, 2020, the payment of any income tax amounts that become owing, and installments, without interest and penalties. Also, personal income tax deadline was extended to June 1, 2020 and trust income tax deadline is moved to May 1, 2020.
Our team can help you through COVID-19
We recognize that the pace and volume of COVID-19 information that is coming at us today is enormous. Our team is here to assist you in sorting through the various new legislative changes, while also preparing for the road ahead. We remain fully operational, ready to quickly identify potential issues related to your business operation and provide sound advice to mitigate risk. It is always our objective to develop alternatives which will optimize wealth, restore stability, and enhance viability wherever possible.
Zeifman Partners Inc (“Zeifman Partners”) is a consulting firm based in Toronto, Canada. Beyond traditional accounting services, Zeifman Partners provides our clients with business advisory, valuation, corporate finance, transaction services, corporate turnaround and insolvency, and estate and succession planning. Zeifman Partners has significant experience in strategic planning as well as assisting businesses through crisis in times of changing economy. Our professional staff has experience in conducting viability analysis, restructuring businesses cash-flow, divesting assets to source and support ready cash-flow, and originating both formal and informal engagements with creditors. Following our decades of experience, we’re able to provide a turnaround plan to deal not only with the current set of known conditions, but to adapt to the constant change of those conditions in our world.
To begin a conversation about your company’s COVID-19 preparedness, reach out to our team today.