Ruth Logan, head of assurance at EY in Cambridge, describes the challenges companies are facing in the current crisis and how they are responding with entrepreneurialism, planning and positivity.
In business, cash is king. Businesses ultimately fail because they run out of cash, so even a profitable business can get into trouble if it has insufficient credit terms from suppliers or inadequate alternative funding for its working capital needs.
There is no doubt that businesses continue to face unprecedented challenges and are having to make very difficult decisions; including adapting or reducing their operations, temporarily ceasing to trade, or sadly closing altogether.
For those able to revive their business, there will come a period of re-evaluation. Some will find the ‘new norm’ difficult to adjust to and some will struggle to pull through, but there will be others who have embraced the opportunities created by the crisis and will thrive.
Opportunities for entrepreneurs and visionaries
Responding quickly to the situation, business leaders with an entrepreneurial mindset shifted their operating models within days to adapt to the new world order.
For example, manufacturers turned their skills and machinery to make ventilators and other essential medical support devices; restaurant owners devised intelligent ways to make home food deliveries; and media companies offered additional interactive home entertainment.
Investing in a digital strategy before the crisis began, such as online communications, ordering or payments, is certainly proving its worth right now.
The East of England is known for its diversity; it’s strength in technology, innovation and pharma industries, for its huge swathes of agricultural land and tourism on the coast. These industries have been some of the hardest hit by COVID-19 and the continued lockdown measures.
Others, such as those working on supporting activities to find a vaccine for COVID-19 or providing solutions for shortages in respiratory support and PPE are busier than ever, bringing with it different challenges, such as ensuring employee health and wellbeing and supply and demand.
It’s also been well reported that some businesses operating in rural locations and those involved in arable farming will face challenges associated with labour shortages, due to the closure of borders, at what is for many the peak of their season.
Regardless of sector, COVID-19 is having a far-reaching impact on businesses. How they respond and, in some cases, recover will depend greatly on how they can adapt to these unprecedented challenges and perhaps access the financial support that is being offered by the UK Government and beyond.
Welcomed government support
The 100 per cent guarantee scheme, which encourages banks to lend to struggling businesses, is a welcome introduction by the Government. In addition, businesses on the brink may be relieved to see that usual rules on wrongful trading of an insolvent business have been suspended, to allow directors to do everything they can to rescue their businesses without fear of exposure to personal liability.
What will also help is the postponement of plans to establish HMRC as a secondary preferential creditor – in respect of certain taxes including: VAT, PAYE and employee NICs – from April to December 2020.
This will give directors more time to understand and navigate the impact of the legislative changes on all creditors, especially if there is a strong chance the company may not emerge solvent from this crisis.
Strong sense of unity
We have already seen the level of pressure companies are facing, demonstrated by a sharp upturn in the number of profit warnings issued by listed businesses across the UK.
Although, due to the business landscape, with fewer listed companies, the East of England has been largely sheltered. However it is in the region’s retail, hospitality and leisure sectors, particularly on easterly coastal areas where the impact will most keenly be felt.
Although the impact is no doubt being felt throughout the economy, what is positive to see is the examples of how companies are adapting and acting to support their employees, supply chains and communities that will benefit now and in the future.
Companies across the East of England have demonstrated incredible resilience in recent years and a strong sense of unity and belief that ‘we are in this together’ will help businesses to reshape and emerge from the crisis.
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