The economic consequences of the coronavirus on future trading assumptions, and the direct impact on many companies in the leisure, travel and consumer sectors already, will place some companies under liquidity pressures and potential covenant breaches from their debt facilities.
1. Change your approach to cash flow forecasting: Companies that have not faced a liquidity crunch before can find the actions needed to change their cash flow management processes overly demanding. However, moving to a receipts and payments basis, daily forecasting and integrating short- and medium-term forecasts almost always increases headroom, runway time to implement other actions and confidence with shareholders and lenders.
2. Stress testing: Stress testing forecasts for different impact scenarios will help provide better clarity on the sufficiency of liquidity and inform the required actions and asks of financial stakeholders.
3. Compliance: Check your compliance with the covenants and obligations in your various debt facilities, including the representations that have to be made on any drawdowns. Αccording to the announcements of the Greek Minister of Finance, Mr. Staikouras, the payment of installments for performing corporate loans to credit institutions is suspended until September. This measure regards the legal entities which are being affected by the current crisis. Without any doubt, the more notice that you can give your debt provider of the impact of coronavirus on trading performance and liquidity, the more chance there is of getting the flexibility you may need.
4. Prioritise existing shareholders: While new money could be raised from third parties, it will potentially be both expensive and a difficult process. Most often, the existing shareholders and lenders to your business should be your priority.
5. Working capital modelling is essential: Certain types of debt facilities are more-quickly impacted by downturns in trading. This is especially so for asset-based facilities where available funding is driven by debtor and stock levels. Careful modelling of the impact of trading on headroom levels is essential.
6. Review temporary finance options: The measures announced by the Greek government for the affected enterprises (suspension of tax & social security payments for 4 months, extraordinary wage of 800 Euros payable by the State, payment of 60% of the rent amounts due to the suspension of the business activity etc.) facilitate liquidity for a brief period, but any enterprise shall focus on any alternative solutions to handle the current crisis with the most efficient way, aiming above all to the protection of the health and employment of its personnel.
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