Coronavirus is much more than a pandemic; it is a major crisis situation for global businesses. While people are getting infected by millions, markets and businesses are experiencing devastating effects as well.
Countries are on complete lockdown and companies are facing survival issues. Many of them are, in fact, facing financial risks, including the risk of insolvency.
The best and only advice for businesses right now is to ensure that they are fully prepared for everything that may come down the tracks later, as the wider ramifications of COVID-19.
Even though no one can predict the long-term economic impact of the situation, insolvency preparedness and risk mitigation plan definitely need to be considered by businesses struggling to stay afloat right now. Here are some facts that you should be aware of.
Review key contracts
At the current stage, it would make sense to review the key contracts that your business has in place right now. Whether the contract defines you as the entity supplying service or goods or receiving them, a careful look at the contract will make things clear.
Based on the current predicament of your company, you can form a view on how and if the terms of the contract will assist it or otherwise.
Carefully study the implications of non-fulfillment of the contract as well so that you are able to comprehend the situation that may lie ahead.
Tailor new contracts carefully
Reviewing current contracts is only half the work done and you need to be extra careful while tailoring the new ones as well.
Since you are well aware of the uncertainties of the situation, include clauses to give your business the flexibility it requires in the times of restricted liquidity.
Consider this as a norm for all your future contracts because this epidemic is a lesson that you should always be ready for any emergency.
Review your financials
No one knows how long the crisis will last and whether you will be able to bear its brunt financially.
A careful review of your financials is most necessary. Have a look at the balance sheet and cash flow position to get a comprehensive picture of your assets and liabilities, creditors and debtors and cash health at present.
Involve your financial and legal advisors for timely detection of impending insolvency concerns. This will provide the potential for early intervention before things get out of control.
Consider insolvency risks
If insolvency risks become apparent after an assessment of your business financials, it is time to spring into action. The best way to start is by making a Google search with insolvency practitioners near me to find the best professionals for drawing up a risk management plan.
They will guide you about turnaround solutions for getting your business out of the fix. Primarily, they will help you find funding options, alternative suppliers and cost-cutting strategies to keep the business afloat during the tough phase.
They may also advise you about tightening credit terms, renewing efforts for collection of payment arrears and meeting payment obligations as and when they fall due.
Stay in touch with customers and partners
In a crisis situation like this one, it is easy to be stressed out and stay aloof. But now is the time to keep in touch with your customers and business partners so that you can retain their confidence.
The reality is that everyone around you is probably going through the same predicament and sticking together is the best way to get out of the crisis.
Communicate constantly and keep them informed if there is a likelihood of delays in payments and chances of missing contract deadlines. You can expect most of them to accommodate because everyone understands what others are going through right now.
Stay on top of financial reporting
Even though the pandemic gets bigger with every passing day, it is no excuse to skimp on your financial reporting. Companies are bound to face a challenge in meeting the duty to report while assessing risk accurately.
At the same time, there are genuine apprehensions about disclosing these risks to the market because they can lead to a negative impact on creditors and shareholders. So you need to give careful thought to the terms of disclosure.
Don’t miss on regulatory compliances
Another aspect that businesses should consider carefully while running during the COVID-19 crisis is compliance with regulatory obligations. They will have to meet these requirements, despite the global challenges.
The best way to ensure compliance is by putting systems in place for maintaining the requisite compliance standards even when there are staff shortages or self-isolation rules.
Knowing these risks and being prepared for them can save your business even in the face of the coronavirus crisis. So you must absolutely ensure that you understand these basics and do the needful.