At a time of crisis, the leaders of a business need to take action quickly to ensure the safety of its people and the ongoing sustainability of the business. The Government decisions around COVID-19 this week has, while protecting the health of our population, created a swift economic downturn which is going to be felt for many months or even years yet.
There is uncertainty for business, uncertainty for employees and ultimately uncertainty around our health. Despite this uncertainty, good governance is vital for organisations and directors need to act on the information they have to date and monitor the business closely.
What should the Board be doing?
- Meeting regularly
The Board needs to get together regularly to review the current situation. This could be up to daily or weekly if things are changing dramatically. This will help boards to act pro-actively rather than reactively, and also ensure boards take the time to make sensible and thought-out decisions, rather than responding impulsively.
Employees will be feeling anxious about the situation. The Board should keep employees informed as much as they can as to the steps taken to protect their safety and the business.
Focus on the safety of its people. Every measure should be taken to ensure employees stay well and that measures are taken to embrace technology required for social distancing.
Take an active role in monitoring cashflow and start re-forecasting on a regular basis. The re-forecasting needs to be done regularly as assumptions are tested or changed as the situation evolves. This is the time to talk to your bank to have overdraft facilities in place to help weather through this time. If we are talking a couple of months – then business are more likely to wait it out, but if this crisis is prolonged to 6 months or 12 months then more significant funding or restructuring will be needed. Lenders may allow repayment holidays or refinancing of debt repayments.
- Operational cost savings
There are the immediate cost savings that can be done by deferring unnecessary expenditure. The harder and more time consuming option is restructuring a business’ workforce. Before jumping to redundancy, there could be alternative options such as reducing employees to part-time, redeploying within the business, or leave without pay. A good example of this is the aviation industry which cannot afford to lose all its flight and cabin crew once the operations commence again. The Board needs to consider the ability of the business to respond and recover once the economic situation starts to improve.
If cashflow and cost savings cannot assist your business through this period of downturn, then Boards need to be very live to the possibility of liquidation. This is the hard reality when there is an economic crisis. Boards must consider their directors duties through this time, particularly to ensure that they are not reckless trading.
If you wish to talk to us about ways to help your business through this time, or know of someone else that does, then please contact us.