Keeping Capital Working: Staying Away From the Edge

    View Authors March 2020

    Coronavirus disease 2019 (COVID-19) is now present in more than 170 countries and territories. More than 210,000 cases have been recorded. Fears in respect of the pandemic have wiped trillions of US dollars off the market value of listed firms and the OECD expects global growth to be its slowest since 2009.

    Social and economic disruption in relation to the pandemic has caused market volatility, economic concern generally and significant uncertainty across all business sectors.

    The scale and effect of COVID-19 is certain to increase significantly across many countries.

    This article considers the financial health of businesses in the face of this threat focusing on working capital..

    Practical Tips

    Given the unprecedented challenges presented by COVID-19 globally, what can senior management do in order to manage and mitigate the risk to the company’s financial health? 

    • Ensure they know and understand what insolvency means in the relevant jurisdiction
    • Engage professional advisers, understand and take advice from their advisors about their legal duties, key finance arrangements and key decisions
    • Hold regular (virtual) meetings to consider the impact of COVID-19 measures on the financial position of the business
    • Prepare short-term cash flow forecasts and review these regularly. Think about flexing these for sensitivities such as the length of a “lockdown” in your jurisdiction/disruption to supply chain/Illiquidity of your customers/loss of significant numbers of your workforce to the virus in a short period of time etc 
    • Engage with banks, other lenders and shareholders – implement a structured regular communications schedule to brief primary financial stakeholders to reinforce trust and avoid surprises
    • Consider whether the financial support that governments are offering is available to the business – liaise with key lenders on this
    • Prepare contingency plans to deal with current and proposed restrictions on the movement of people and goods
    • Protect and prioritize key suppliers
    • Do not neglect internal compliance reporting – avoid unnecessary breaches and consequential challenges in relationships with lenders
    • Minute key decisions and the reasons for those
    • Communicate with your people/customers/suppliers