Knocked by the pandemic, many businesses this year have had to do more than ever just to survive. From those in sectors such as retail or hospitality who have had to close their doors for weeks, to others affected by reduced consumer spending on holidays or travel. While some companies are achieving successful business pivots to other products or services, others are still hanging on by the fingertips.
But to keep trading into the Spring, some Board Members and Non-Executive Directors are going to have to take a number of steps for their businesses to survive. Here’s what businesses can do to try and ride out the storm.
In the first instance, companies need to review their financial resources – how much of the working capital and funds set aside for further investments in the business should be used to keep the business trading as a going concern. The higher the amount, the more cost cutting would have to take place immediately.
Now is the time for collaborative proactive leadership and self-awareness of your own behaviour. Boards need to exercise ‘positive tension’ amongst different Directors to ensure they do not become dysfunctional during any times of crisis. Everyone needs to pull in the same direction instead of trying to play the ‘blame game’, even when decisions are challenged.
As many judgements will be needed at this time, the whole board must be involved in deliberations, with Non-Executive Directors playing a meaningful role and by taking an independent ‘outside in view of events when it can be easy to become blind-sided by day-to-day challenges.
The primary priority of businesses during a lockdown is to safeguard their employees by continuing furlough where appropriate and to safeguard facilities and assets to determine how and to what extent work can continue.
This could include further cost cutting by redundancies, closing some of the operations to reduce costs. Also, many companies have decided to trade for cash as opposed for profit to maximise cash resources.
However, Boards should be aware that in terms of section 172 of the Companies Act, Directors have a fiduciary duty to act in good faith for the benefit of all stakeholders for example, shareholders, employees, customers and suppliers.
In most jurisdictions there is what is known as wrongful trading; Directors who keep their business going even though they know or should know that the company can no longer pay its debts, can be held personally liable.
Boards should meet every other day, whether online or in person, to review cashflow on a regular basis and ensure that they can meet their financial obligations.
Directors should take professional advice from their accountants as well as their lawyers as needed and keep proper board minutes to protect their interests.
It is important for the Directors to work with the auditors and lawyers who will want to satisfy themselves that the business can continue trading and meet its debt obligations, otherwise the company must declare insolvency. The Board and the accountants will want to see forward cashflows revised weekly for several weeks at a time to satisfy themselves that the business has the liquidity to continue trading and meets its obligations.
Looking into the future – future business development
As well as looking at the ‘the now’ businesses must also start preparing for the rest of 2021 in terms of trading and business continuity. How are employees going to be managed? Will employees need to be cut further or gradually re-employed as furlough ends? What further action is needed to trim overheads and operating costs? Do you need all that office space? Or could it be cut if you continue long term a more hybrid style of working between home and office? Should dividend payments be suspended for a year to cut costs? What other forecasts need to be made?
By ensuring all these decisions are balanced together by both senior Directors and Non-Executives Board members and avoiding ‘group think’ you will achieve better decision-making and more detailed analysis. Everyone should openly share all issues, worries, problems and possible solutions to ensure no hasty decisions are made without examining all parts of the picture.
If you can properly achieve all these steps as an entire board working together to make the right decisions and the business can genuinely keep trading in further tough times, it might not only survive but also thrive into next year and beyond.