10 tips for SME business owners during the COVID-19 pandemic

Fox Williams LLP logo
Paul Taylor
Freddie De Boise

United Kingdom April 3 2020

Following the outbreak of a global pandemic unprecedented in recent memory, the UK is now reeling from the devastating effects of the coronavirus. Small and medium-sized businesses throughout the nation will already have been forced to come to terms with this new reality, through a combination of staff illness, forced closures, supply chain disruption and loss of business.

The ongoing announcements by Rishi Sunak, the Chancellor, amongst others, should be welcomed as a useful means to preserve cash and prevent insolvency among UK businesses, but what other measures can be put in place?

Here are our top ten tips to help SMEs and business owners to hopefully survive and succeed during this period.

1. Seek out new financing solutions (but beware of piercing the ‘corporate veil’) – A fall in revenue can make it difficult for businesses to service their existing debt obligations. Speak to your finance providers – often, the bank will be far more sympathetic if it is involved from the start. Any quid pro quo for such concessions however, for instance personal guarantees (see here), should be considered carefully.

Businesses can also consider taking out new finance. The government has announced the creation of the Coronavirus Business Interruption Loan Scheme (CBILS), which will lend up to £5 million in the form of term loans, overdrafts, invoice finance and asset finance to viable businesses that would otherwise be turned down. Further details can be found in our recent article here.

2. Reduce and slow cash outflows – Seek to negotiate the terms of key contracts. The most important of these, and also likely to be the most difficult to achieve, is the renegotiation of terms between a landlord and tenant. Consider approaching the landlord requesting some/all of the following ‘direct’ concessions (this will involve agreeing a state of affairs that differs from that which has been in the lease):

  • discounted rent
  • a rent deferment where the obligation to pay rent does not go away but a payment plan might be agreed between the parties for the deferred rent
  • a rent free period
  • service charge reduction.

Whilst the temptation might be to reach an informal agreement, landlords will probably want time to consider the request and to document any concessions. If rent is to be postponed, for how long will this be the case? Will there be a time limit on how long the rent holiday is to be, and will there be a mechanism for ending the agreement? It is also important to ensure the parties are agreed as to which rents any concession will apply – will it apply to all rents payable under the lease or just the principal rent? For an in-depth look at this topic, which is fraught with potential difficulties, see our recent article here.

3. Consider your employees – Cross-train staff so that they are able to perform a variety of roles in the business. In the longer-term, look to future-proof your business by investing in technology that allows employees to work outside of the office.

Regular communication with staff will be invaluable, both in terms of explaining the company’s response to the virus and in publicising the latest updates and schemes available to employees, such as the government scheme for refunds of advance rail fares (see here).

Where a loss of business requires more drastic action, it is essential that businesses plan and consult with their staff carefully. Options to consider include reduced pay, reduced hours and redundancy, but specialist advice should always be taken on any proposed course of action. Businesses should take advantage of the Coronavirus Job Retention Scheme, which will give all UK employers the ability to pay part of their employees’ salary (up to 80% of their workers’ wages up to a limit of £2,500 a month) for employees that otherwise would have been laid off.

4. VAT – Set up a payment plan for quarterly VAT and seek whatever further concessions you can from HMRC. The government has announced a deferral on VAT payments, so that payments due between 20 March and 30 June 2020 will now not need to be made until 31 March 2021. Ensure that you cancel any direct debit mandates but make sure that you file any required returns on time. Use this deferral period wisely and ensure that you are able to pay all liabilities that will accumulate during the deferral period.

5. “I’ll see you in court”- In “normal” times, if you fail to pay a rent you may expect to receive a stat. demand followed up by a winding up petition. These are, however, not normal times. The UK’s court system has not shut down, but it has been scaled back with more reliance on video call technology. It will be a lot harder for creditors to bring/enforce proceedings during the crisis. It is also being reported that the Government is considering a moratorium on the issuing of Petitions to assist struggling businesses in the face of the impact of Coronavirus. Those contemplating issuing a petition should do so promptly to avoid the risk of a moratorium being introduced.

6. Prepare a short-term business forecast… but also establish longer-term procedures and stick to them – The old adage is true, by failing to prepare you may be preparing to fail. In the immediate term, a cashflow forecast modelling the business over the next 2-3 months will not only help you prepare to mitigate the effects of the virus, but will also be important to maximise the chances of success in any contract renegotiations or new financing.

The effects of the pandemic will be long lasting, so plan to be in survival mode for perhaps two or more years (not just the next few months). Consider implementing effective long-term procedures such as the:

a. production of detailed, accurate and up-to-date management accounts; b. review of such management accounts and all other relevant trading/financial information at regular minuted board meetings where directors are encouraged to raise any specific concerns; c. formulation of specific areas of responsibility for each director; d. review of the position of the company’s creditors; and e. expedition of the collections of debts.

7. Keep your distance! Make arrangements for key business decisions requiring board and/or shareholder consent to be made virtually. In the case of board meetings, most companies’ articles of association allow for virtual meetings and most boards will be familiar with the process of holding meetings by telephone or videoconference, but it is especially important in the current environment (where directors may be using new technology for the first time or stranded in different time zones) that the process set out in the articles for virtual meetings is followed.

Virtual shareholders’ meeting can also be effective, but again reference should be made to the Companies Act 2006 and the company’s constitutional documents (e.g. its articles and any shareholders’ agreement) to ensure that any required formalities are adhered to. Given the obvious practical difficulties of convening large numbers of shareholders by telephone or videoconference, consideration should be given as to whether a hybrid meeting (a combination of a physical meeting and a virtual meeting) would be possible or the meeting delayed. Of use in this regard to publicly traded companies needing to hold AGMs in the next few months to consider and adopt annual accounts, the government has recently announced that companies can apply for a three month extension on the filing of accounts, subject to restrictions, which can be applied for here.

Also for all companies, if, immediately before the filing deadline, it becomes apparent that accounts will not be filed on time due to your company being affected by Coronavirus, you may make an application to extend the period allowed for filing.

8. Consider the duties you owe to the company – The coronavirus will not relieve directors of the statutory duties they owe to the company. These duties, codified in the Companies Act 2006, are as follows:

  • to act within powers
  • to promote the success of the company
  • to exercise independent judgment
  • to exercise reasonable care, skill and diligence
  • to avoid conflicts of interest
  • not to accept benefits from third parties
  • to declare an interest in a proposed transaction or arrangement.

Whilst a company is solvent, the second duty in particular requires directors to act in a way that they consider, in good faith, will be most likely to benefit the company’s shareholders as a whole. When carrying out this duty, directors should have regard, amongst other things, to the long-term consequences of any decision and the need to foster the company’s business relationships with suppliers and customers. For a more in-depth review of these duties, please see this article.

9. But be realistic about the company’s prospects and act accordingly – Where a company’s solvency is in question, the directors’ duties to shareholders will shift to a duty owed to the creditors as a whole. Past this point, actions taken will be under greater scrutiny and, in certain situations, directors may be held personally liable under the Insolvency Act 1986 for any loss suffered by the company as a result.

One area of temporary reprieve from such liabilities are recent changes announced in relation to wrongful trading. Under normal circumstances, directors may incur personal liability if they allow a company to continue to trade past the point where they should have concluded that there was no reasonable possibility of saving the company. New measures announced recently will allow directors to trade, even if there are reasonable grounds to suspect the company could become insolvent, without incurring personal liability (this applies in respect of actions taken post 1st March 2020). There will also be a temporary moratorium to prevent creditors from seeking to wind up companies that are seeking rescue or restructuring.

Nevertheless, ensure that issues are identified and dealt with. Document all decisions (for instance, regular email correspondence between directors and properly minuted board meetings) and demonstrate that all decisions made by the board are reasonable in the circumstances. Where insolvency is a possibility, despite the breathing room provided by the new measures, ensure you take appropriate business and legal advice. It goes without saying, but do not transfer key assets out of the company where there is no commercial justification for doing so. If your business is struggling to stay afloat, see our ‘Top 10 Tips for Struggling Companies’ here.

10. Keep up to date – This is a fast moving situation and the government is introducing new measures at a blistering pace. 

Fox Williams LLP – Paul Taylor and Freddie De Boise

LETTER TO FRIENDS, CLIENTS AND COUNTERPARTIES

Dear Friends, Clients and Counterparties,

MINIMIZE THE UNKNOWNS TO MAXIMISE PROFIT IN 2018

The Unknowns inherent to our professional lives are staggering; naturally they can cause a lot of stress. Scenario planning is a logical stress mitigation tool-identifying the “worst case scenario” and strategizing a rebound can add great peace of mind. But as the global economy continues to shift and shake , we’re constantly reminded that we can’t have a plan for every possible outcome. And this reality is what stress me the most. And not the temporary “good stress” – as when you’re watching a sport or giving a presentation, or proposing to your girlfriend – I’m talking about chronic stress.

The kind that will kill you faster than lack of sleep, smoking, a sedentary lifestyle and alcohol abuse combined.

Everyone reading this can relate, because as business people it’s our job to be prepared for the unexpected, to have answers when the unforeseen arrives. Not having those answers is well….stressful.

Unfortunately, we can’t change the ebb and flow of geopolitics and the global economy. The best we can do is to identify the necessary resources to weather an unforeseen loss of revenue or a drastic increase in costs. Nine out of ten times, cash is that necessary resource. The most successful businesses know this well: the single best defense against an unpredictable business environment is a cash position which remains strong throughout the business cycle.

The preceding has not been pulled from thin air. A primary reason traditional financing isn’t available to those who most need it is that banks are stockpiling cash in anticipation of the next unforeseen economic catastrophe.

In doing so, banks are able to protect shareholder value and preserve financial stability; for various reasons (not the least, common sense), we expect this strategy to continue.

Small and medium import businesses need to know they can implement the exact same strategy to protect their livelihood as global banks do for their shareholders.

They need to know there are tools designed specifically for them to achieve this end; tools that give even startup businesses (among the least credit-worthy) the power to hedge against their worst case scenario by keeping cash reserves strong.

Since 1999, we have been laser-focused on helping importers by maximizing available resources throughout the business cycle.

WESTCAP has relieved a lot of stress over the years, and we can do it for you.

One of our experienced professional would be happy to help you strategize for future success.

Call, write, or stop by anytime; there’s no reason not to say Hi!

Yours in Prosperity,

WestCap Inc – West Capital Markets

BANKS & THEIR MONEY!

You, dear reader, likely also think of banks as where the money is when you’re looking to finance purchase orders or issue an LC to a supplier against an incoming letter of credit.

It’s true. Banks are where the money is. Just not for you, most likely……

Continue Reading……..

BANKS AND THEIR MONEY!

FCR vs BL

FCR-vs-BL

Why exporters and importers are using a FCR certificate?

FCR certificate mainly used in international transactions where Ex Works(EXW) trade term is selected by the parties.

According to ICC’s Incoterms 2010 rules “Ex Works” means that…………

COUNTRY REPORT – GHANA – 2016

Strengths

  •   Established track record of good governance, with a functioning democratic system and peaceful transfer of power among political parties.
  •   Natural resource base (cocoa, gold, forestry etc.) now supplemented by discovery of commercially- exploitable oil reserves – output from 2011.
  •   Strong GDP growth in recent years, even with a downturn in 2014-15.
  •   Market-oriented policy framework.
  •   Positive relations with the IFIs.

Weaknesses

  •  While some safeguards are established, the ability and capacity to manage oil wealth is yet to be tested fully.
  • Continuing twin deficits (fiscal and current account) require careful management.
  •  Frontier markets, including Ghana and Nigeria, are not immune from sell-off pressures in emerging economies. There is therefore periodic risk of currency depreciation, FX reserve depletion and capital flight.
  • Although per capita incomes have improved, poverty remains pervasive in some rural areas.
  •  Regional instability and uncertainties, Burkina Faso, Nigeria and Mali.

Continue Reading; Country-Report-Ghana 2016