In response to the economic shock caused by the numerous public health measures to control the spread of COVID-19, the provincial government announced, on March 19, 2020, the creation of a $2.5 billion program to assist Quebec businesses.
In a matter of days, thousands of Quebec workers were confined to their homes, creating unprecedented logistical challenges for the province’s business leaders. While each industry will have its own unique challenges, all businesses will eventually confront a common problem. As soon as social distancing measures are lifted, each company will require a business continuity plan to enable it to relaunch its activities.
The success of the relaunch will depend on many factors, especially the manner in which the company’s finances have been managed during the crisis, and how the company maintained relationships with customers and suppliers.
Here are a few ideas to help you think about ways to limit the negative impact of the economic slowdown on your business, while at the same time preparing for recovery.
1. Maintain effective communication channels with key partners
While there is always a need to maintain strong relationships with financial partners, suppliers and landlords, these relationships need to be strengthened in the coming months. Communicating with partners and establishing a short and medium-term plan can be beneficial. Transparency regarding the company’s financial situation and the particular challenges it faces should make it easier to reach agreements with the company’s various partners.
2. Monitor liquidity closely
Circumstances can change rapidly; it will be prudent to monitor liquidity more frequently. If there are cash flow problems on the horizon, it would be advisable to find alternative solutions as soon as possible and verify the company’s eligibility for government programs. It will be important to closely monitor accounts receivable to ensure that invoices are paid by the agreed dates. Consider reducing any operating expenses that are not necessary in the current situation.
3. Practice responsible inventory management
As with liquidity, rigorous monitoring of inventory levels is essential. In order to master the new market, it will be important to understand customers’ changing needs. The current situation may require lower inventory levels and/or more efficient inventory management. Nonetheless, the resumption of activities should be anticipated now, so that measures can be taken to ensure the availability of sufficient supplies to support a profitable recovery at the end of the crisis.
4. Cost-benefit analyses: identify sources of loss and choose the lesser evil
Few businesses will make it through the current economic turmoil without a scratch. Some decisions will be difficult to make, but will have to be made to ensure the company’s viability. Different scenarios for the short and medium term should be analysed, and the sources of “acceptable” losses should be determined for each one. In studying these scenarios, one must take care not to sacrifice elements that may seem futile at present, but that could take on paramount importance when operations are resumed.
5. Examine the possibility of obtaining deferrals, moratoria, preferential credit terms (interest rates and fees) or temporary/interim financing
Maintaining regular communication with financial partners will allow the business to determine whether it is eligible for payment deferrals or other measures to lighten the financial burden. Obtaining moratoriums or preferential credit terms could improve control of cash flow without the need for potentially harmful cuts to expenses.
6. Consider both employees and preferred creditors
Labour is often an SME’s most important asset, especially in the service sector. Nonetheless, maintaining the employment relationship with employees during this period of economic contraction should be assessed in light of the need to protect the company from the liability associated with layoffs. At this stage, difficult business decisions may arise. Sound human resources management may involve rotating layoffs, job sharing or a shorter work week, which could help the company avoid defaulting on its debts.
7. Verify eligibility for government assistance programs
The various levels of government are fully aware of the effect that containment measures are having on the health of the economy. On March 19, 2020, the Minister of Economy and Innovation and the Minister of Finance announced the creation of the Concerted temporary action program for businesses (PACTE), providing access to emergency financing for companies whose liquidity is affected by the crisis. The federal government has adopted similar measures, which include a temporary three-month wage subsidy for eligible businesses to avoid layoffs.
It will be important to check for regular updates on these assistance programs, as the eligibility criteria and various tools for applying are bound to evolve rapidly.
8. Seek professional advice
Don’t try to navigate the crisis alone. Expert advice from specialists in finance, banking, restructuring or insolvency could provide you with the tools you need to address the consequences you may not have foreseen. By surrounding yourself with a team of specialists, you will improve your company’s chances of surviving these economic upheavals.
9. BIA/CCAA
As a last resort and if none of the above-mentioned measures have been successful in maintaining the company’s financial stability, management may seek protection under the Bankruptcy and Insolvency Act (BIA) or the Companies’ Creditors Arrangement Act (CCAA) if your company owes over $5 million to its creditors. Such legislation can provide the necessary assistance to move a company toward the end of the tunnel and improve its financial situation.
