Coronavirus looks set to be the largest geopolitical event since the Credit Crunch of 2008, with implications for the global economy that are likely to set the tone for the coming decade. I am sure that, like the staff at Scrutton Bland your immediate focus is on taking responsible steps to avoid all but essential meetings and travel. We all wish to put the safety of our people, suppliers and customers first.
However, attention also needs to be turned to the immediate financial position for businesses in our region and beyond. We have had calls and emails from clients over the weekend, a number of whom have seen contracts cancelled, trade drastically reducing, and uncertainty over workforce scheduling.
Measures were announced in the Budget last week, including the easing of bank capital adequacy requirements. However, it is still too soon to see any of this coming to effect.
How can we help?
It will all come down to working capital.Business advisers like those at Scrutton Bland all have a responsibility and a duty to support and work with our clients and the wider business community through this difficult period. Our advice is as follows:
- Get on the front foot quickly:
- Face the issue head on.
- Take stock of your balance sheet today: if possible put a stay of execution on all decisions you made before this situation arose. For example, it may be right to defer recruitment, to hold on pay-rises, to exit any contractual positions if you are still able to, to avoid committing to any new ones.
- Look at immediate cash outflows: which of those can you place a hold on?
- Look at immediate cash inflows: speak to your customers so that your expectations are realistic, not optimistic.
- What is the cash “hole”?
- Estimate how much of a disruption this will be to your business in terms of timescale and spikes in supply and demand. Clearly, if you are a supermarket then this period and profile looks very different than if you are a travel agent. Once you have estimated this period, double it. Then work out what contingency you need.
- Prepare some cash flow projections and present them to your Bank. Ideally before they ask you for them. The Banks have government support to underwrite loans and they have a duty to support you. It is not in the Bank’s interest for good long-term businesses to go under.
- Make yourself aware of your obligations, as well as your protections, as a Company Director under the Insolvency Act.
- Speak with your contact at Scrutton Bland: we are here to help you through this.
The international picture
Data released by The Guardian yesterday (16th March) indicates that the pandemic may have cut China’s growth in half during the first quarter of 2020, with industrial output falling 13.5% in January-February, compared with 2019. Year-on-year, fixed asset investment fell 24.5%, private sector investment fell 26.4%, and retail sales shrank 20.5%.
“Judging by the data, the shock to China’s economic activity from the coronavirus epidemic is greater than the global financial crisis,” Zhang Yi, chief economist at Zhonghai Shengrong Capital Management told Reuters.
In 2008 we felt the impact of a partially-integrated financial services sector. Whilst it was often cited, and politically expedient to refer to it, as a “global crash” at the time, those countries where the banking system was more stand-alone and independent, Switzerland or Canada for example, faired far better than those places where it was cheek by jowl, like London and New York.
So I think Zhang Yi is right: this will be tougher than the Credit Crunch. This time all countries are involved in multi-country supply chains, with the possible exception of North Korea. Globalisation looks set to go in to reverse and unpicking that will be painful.
Remember – whilst we may not be able to shake your hand at the moment, we are available to our clients by phone, email and via our website. All our advisers are determined to give you the advice and support you need in these challenging times.