COVID-19 impact assessment tips

March 25, 2020

The social and economic impacts of the COVID-19 pandemic have had swift and breathtaking effects on Australia.  State and Federal Governments have announced a range of stimulus initiatives to help with the economic fallout without knowing the timeframe on dealing with the medical crisis.

Key to the ongoing survival of any business is access to appropriate funding resources to achieve its business and financial objectives.

These are unprecedented times and The Quadrant Advisory offers the following guidance to companies to work with their bank and other financiers in these unchartered waters.  Some key callouts from our perspective:

  • Liquidity will become increasingly important particularly.  If your customers start to delay or reduce their normal business activities due to the virus’ impact – keep an eye on your cash balances and working capital facilities.  If any potential cash shortfalls are likely to occur, have a conversation with your bank about how much additional funding is needed and for how long – other options could include debt repayment holidays, increased limits, etc.  The recently announced Government SME finance initiatives and how they apply to you (if at all) should also be considered.
  • Financial reforecast (on a constant basis) as your actual results become known each month to ensure that you understand the impacts of any potential decreased revenue and/or increased costs ahead of time.
  • Make sure financial reports are produced on a timely basis so you can make informed decisions based on current and timely information.
  • Continually recalculate your banking covenants (as applicable) to ensure you have visibility of any tightening of headroom on their measurement.  If it looks like you may be in danger of breaching a covenant, it is better to approach the bank first with an explanation as to its potential or actual breach rather than providing reasons after it has happened.  There may be appetite from your bank to waive or reset the covenants in the short-term depending on the situation.
  • Consider “worst case” scenarios to see what your financial position could look like if major events occur such as a city lock down, all staff not being able to attend work for 2 weeks, etc.  Some of these would give you an indication of what the impacts could be and provide you with early warnings on actions to take if you started to see these signs of stress occurring.
  • Consider how an upturn or restoration of normal activity, when the worst of the virus has passed, would impact your financial position and whether debt restructuring and/or additional funding may be required to support any anticipated rebound in business performance.

This is not intended to be a scare message but to provide you with some tips on being proactive with your financial position in the context of our current extraordinary environment.

We believe that banks will be mindful of the predicament facing businesses and based, on recent media announcements and conversations we have had in recent days, will be looking to support their business customers as best as possible.

Positioning yourself in the best possible manner (and ahead of a potential flurry of other customer applications) would allow for any such support to be provided quickly if necessary.  No one really knows how long the impact will be but we believe it is better to “plan for the worst and hope for the best.”  It may also be an opportune time to pick up market share as competitors struggle with how they manage the impact of the virus on their own operations.

Quadrant Advisory has significant insight, knowledge and experience in dealing with banks and other financiers and we can leverage this expertise for your organisation’s benefit in the current extraordinary circumstances.  If you require assistance, please contact Quadrant Advisory’s managing director, Paul O’Farrell.