We work with a number of part time FDs who support local SMEs in a variety of industries. One of our longest standing partnerships is with Myles Arnott who has clients that have been impacted at both ends of the Covid-19 spectrum. We asked him, with such diverse clients, how he has been able to offer support during the current crisis and whether, like the government, they have started to think about an exit plan.
So Myles, you have clients that are in hospitality, technology and manufacturing. How have they been impacted by the shut-down and are there any common themes?
As you would expect, all have been impacted to some degree by COVID-19, ranging from fairly minor operational challenges to significant operational and financial impact. While different industries face different challenges, there are some fairly obvious and consistent themes: keeping staff and customers safe is the biggest concern initially, followed by cashflow, making sure the business survives and also trying to understand what support is available.
For those most severely impacted, what have you done to help these clients in terms of ensuring their business viability?
The initial few weeks were challenging to say the least. Faced with revenue falling off a cliff and unprecedented uncertainty we had to quickly revise our plans to make sure the business would survive the pandemic. All this at a time when the government itself was trying to understand the scale of the crisis and what measures needed to be put in place.
We use a set of financial management tools with our clients to help us to monitor the company’s performance against plan: A scenario based forecasting tool – which we use for setting the annual initial budget and subsequent reforecasts; a weekly rolling cashflow forecast with a 13 week view and a detailed monthly management accounts review which is used to measure performance against plan.
These tools have really come into their own during this crisis as we could quickly create new scenarios and instantly see the impact on profit and cash, highlighting where and when to reduce expenditure. Ongoing performance against the revised plan is now being monitored weekly through the cashflow model and monthly through the management accounts.
With such uncertainty we know that to many, planning may seem futile, however at least we have a base on which to manage these businesses and, like the government, we can now start thinking about our Exit Strategy.
Exit Strategy – what do you mean by that?
In any business, times of change are the most risky. Whilst starting to trade again will be a welcome relief to all, it does come with additional risk. When you reopen or begin to see sales return you must ensure that you remain laser focussed on your cash forecast. Returning to some level of normality will, in most cases, need spare cash available to pay for salaries and things like stock. And cash is something most businesses don’t have much of because of COVID-19. It’s going to be another tricky period and some juggling of priorities will be needed.
So, for our clients we are developing financial tests tha
- Actual cash balance reaches a specified level
- Forecast cash balance reaches a specified level
- Year to date profit reaches a specified level
- Full year forecast profit reaches a specified level (which may even just be to breakeven)
- Committed customer bookings have reached a certain level
We will be monitoring performance against these tests each week and re-plan as required.
One thing is for certain: None of our planned scenarios will pan out exactly as we’ve predicted but at least we know the decisions that need to be made at what stages along the various paths which in itself gives some certainty in these uncertain times.
Thanks Myles, that’s really useful. I know that through your work you have helped these businesses make difficult decisions regarding furloughing employees and reducing spend in other areas. Is there anything else you would like to add?
Yes, given how critical it will be to have some working capital available to spend on salaries and stock etc especially as you start to trade again, it may be worth considering the Government backed Bounce Back loan. This new loan scheme is already proving much more accessible with 69,000 loans approved on the first day. You can apply for up to £50,000. It is important to bear in mind though that this is a loan, not a grant, so it will need to be paid back.
If you think your business could benefit from the support of one of our part time Finance Directors then please do get in contact for a confidential, no obligation chat. Just email PT-FD@artemisclarke.co.