It may seem a little perverse – when some businesses are struggling to access the support announced by Government already – but by now many will have prepared and implemented their survival plan and now just need to sit out the next few months and hope that the cash support is forthcoming in time.
This crisis will be over one day, so now’s the time to start to work on the recovery plan.
The pandemic has caused an economic recession and it is a stark fact the more business fail and become insolvent coming out of a recession than do in a recession itself.
How can that be?
Well it’s because many businesses will come to the end of the current lockdown with severely depleted capital resources, and very little cash, even if they have survived that far. This creates an enormous risk that many of them will fail when the economy starts to get going again because they will, in effect, be over trading based upon the capital resources that they will then have available to them.
In other words, their cash flows are at least as likely to fail in the period when the recovery starts as they are now. Without reserves of working capital or new lending businesses will run out of cash just as the green shoots start to arrive. Previous recessions are proof of this.
There appears to be a feeling that direct support for businesses can finish when the lockdown has ended because then we will be in recovery mode. Quite the opposite. We will still continue to need a stimulus package and massive injections of liquidity into the economy in general, and businesses in particular, at that point of time.
I have not, as yet, seen any awareness of this very obvious risk in government circles, and no discussion of it either, but unless extensive funding, with up to 100% government guarantees, is available to businesses at that time the chance that we will dip into deeper recession after the lockdown rather than see recovery is a very high indeed.
This crisis will, in other words, be far from over when we try to return to work: in fact, for many businesses that may well be the most trying period of all. As part of your recovery plan run your budget and cash flow forecast; remember to include the investment you’ll need to make in marketing and take a look at how much working capital you’ll need as sales start to increase. (Maybe you should sit down before you take this last step).