With almost 25 years of experience in risk governance, strategy and exposure in both the retail and commercial environments, Richard Wilkins is Elavon Europe’s Head of Credit. He outlines five things business owners should consider as we face a new landscape.
1. The cost of adhering to new regulations
“These will vary from business to business. A hair salon might need screens to separate sinks and workstations or a fast-food outlet may need additional staffing to monitor social distancing in queues. Either way, installing and policing new restrictions will have cost implications,” says Richard.
“There’s also the price, and potential difficulty, of sourcing masks, gloves, aprons, hand sanitisers and disinfectants to protect you, your staff and your customers. These will all see overheads rising and no-one yet knows for how long.”
· How will I cover the initial investment costs for these (loans, cash reserves, etc)?
· Can these be built-in to my new operating cost models if social distancing persists?
· If demand is high, can I source the protective products as I need them?
If you need to take your business online or change the way you take payments to adjust your operating model, explore new ways to trade.
2. Rising overheads against reduced sales
“While outgoings may increase, any new restrictions could see a direct hit to your bottom line. A restaurant might need to reduce how many people it can seat at one time, to preserve social distancing, or a coach operator may have to limit how many people can travel on each trip. It may not be possible to cut overheads to match capacity – a restaurant still needs heating, staffing, stock; a coach still needs fuel and a driver. So while overheads rise, sales and therefore profits may fall,” warns Richard.
· Can I cover my old and new overheads and still operate profitably? Will I have enough cash to pay my bills on time?
· If not, what needs to change to make my model work?
· Does it make sense to operate if those changes haven’t yet been made?
3. The fall-out from furlough
“While furlough funds continue, companies might ask themselves if they should remain closed and keep taking the support or risk reopening,” says Richard. “Businesses have to weigh-up the impact of staying closed against their readiness of reopening in a recession. After all, with rising unemployment or those in work potentially being paid less, there is a direct impact on available trade. For some, the costs of reopening into such a disrupted environment could be more than they can bear, so staying closed for longer or even indefinitely are very serious considerations.”
· Should I open or is it better to sit, wait and watch?
· Am I fully aware of the new landscape I’m operating in?
· Do I have the right plan to that ensures my business can keep going and thrive?
4. The changing appetite for risk
“Those that can’t ask themselves the tough questions risk withering on the vine!” Richard warns.
“You need to look behind the headlines. While Government-backed loans are being talked about widely to help businesses back onto their feet, they’re not open chequebooks,” says Richard. “If the loan defaults, the Government will assess the lending decision, and may withdraw that guarantee if it doesn’t consider the decision was ‘sound’. That leaves the lender carrying the liability. As a result, they may be more cautious about who they lend to.”
· If I’m eligible for support, can I keep operating until it comes through?
· Can I demonstrate to a lender good cash management discipline? Do I have a cash-forecast prepared for the next 90 days?
· Can I afford repayments and still build my business in the new trading landscape?
5. A second wave
“Some countries that emerged earliest from restrictions reported a resurgence of cases, such as China and South Korea. The cost of shutting-up shop, reopening in straitened times, and then having to close again, could be too much for some companies to cope with - emotionally and financially. Some may decide not to open until they’re confident the pandemic really is over.”
“Having a contingency plan in place, in case of a second wave, would be wise. It would not only leave you less vulnerable, but means you could operate with peace of mind and more confidence. Subtle differences that can be key to success.”
· Do I have a contingency plan in place in case of a second wave?
· Could I face closing and reopening again – financially and emotionally?
· How can I 'de-risk' or insulate my business model?
How can Elavon Help?
“There is already light at the end of this tunnel, and there will be a recovery. But part of that is asking the tough questions of yourself, taking on-board the learnings and placing yourself in the best position to take advantage of the recovery when it comes,” says Richard.
“We can work with you to find alternative ways to continue taking payments – be that adjusting your online presence, taking payments over the phone, or more card machines so you can separate staff ones from customer-facing ones or maximise contactless opportunities. Whatever helps, we can explore that with you when you talk to us.”