During this self isolation time, I’ve been sitting at home listening to the daily briefings and reflected on what happens when we get the green light to get back to work. This blog is designed to provide some insights from 37 years of insolvency work seeing the highs and lows of the economy.
So we get the green light and open up the restaurant, bar, factory or retail store. Employees are nervous and you reach out to your customers and clients or you wait for the first foot traffic into the store….a trickle. At the same time you start getting the first calls from your suppliers looking for the deferred payments or past due accounts, now what? Employees are starting to look for their pay cheques, the bank is looking for financials. As a recent client said, negotiating deferrals on loans becomes difficult when they ask for the financial statements and they are disastrous. What about loan covenants, if you are offside, can they call the loan or pick up the equipment? Lots of questions, what about some answers?
At S. Funtig & Associates, we are here to help. We want you to know that there are options both for you personally or for your business. These options may range from lending an ear and providing business advice to assisting in filing a proposal to give you or your business time to recover while you or your business get back to work.
Here is the legal part, this blog is not designed, nor in the space available, can we set out all conditions, exceptions or possibilities. Once you read this blog, you should contact one of our offices near you or contact a local trustee near you for greater analysis and review of your particular circumstances. For ease of reading, we will try to create a series of short blogs written for ease of reading and avoiding lots of legal jargon.
During this time, it might be time to take stock of where your business and you are at. Realistically, are your books in order, do you know what is due and when, do you know what is collectible and when you can anticipate the funds? Does the bank or financial institution have any bank requirements in terms of liquidity, margin calculation or debt covenants, can you satisfy them? What do you need to ramp up operations and where is the money coming from?
A big question in any turnaround is where is the cash coming from? I am assuming that a lot of the accounts receivable will have been used up keeping things afloat since this craziness started. Spend some time identifying sources of funds, redundant assets, personal funds, additional borrowings from the bank, in some cases the banks will want additional security in the form of a mortgage against your home to secure the loan.
As you move forward with the decision to restart, As I listen to the news, economists are saying that sales will be lower for the 2020 year and into 2021. It makes sense as customers may be reluctant to expose themselves to the virus until a vaccine is developed and rolled out. For restaurants reduced sales may occur as a result of the social distancing requirements. Where restaurants were counting on two or three seating’s can you sustain the operations where the turnover is 50-75% of what you required in the past. Manufacturers may be encountering lower demand for their products due to consumer demand for say, automobiles. Prior to Covid, a lot of manufacturers in the Southwestern Ontario area expanded their operations due to the great economy and financed their expansion with borrowed funds. A client recently contacted me concerned that they are asking for deferrals on payments. To date they have been making the payments but an area that a lot of clients miss is the covenants in their loan agreements. This may include a requirement to have their loans equal to or less than 75% of good accounts receivable less than 90 days, or a working capital ratio of 1.2 to 1.0. What happens if your long time customers don’t recover from this pandemic? Many banks can require the business to “cure” the deficiency by way of an injection of cash. A suggestion is to have those discussions with your financial institution now; a lot of banks will try to work with their customers.
Now is the time to have the hard look at whether you have the resources to sustain your company, maybe on a reduced basis, during the restart period? A great place to start is preparing a cash flow projection looking at various scenarios on the restart period. Your accountant can help by lending that critical eye to your operations. Remember one of the biggest issues will be the deferrals, how will you bring those current while trying to fund the rebuilding of the business.
So this is where a Licensed Insolvency Trustee or LIT can help. We provide that unattached view of your business, offer options, and identify redundant assets that could raise cash, have relationships with financial institutions to assist you in having conversations with them to discuss your situation.
After doing this work through a lot of turbulent times, I find my job isn’t necessarily looking only at the numbers, many business people that I meet are wrestling with the fact that their business is failing, they will be unable to provide for their family and they will lose their homes in a worst case scenario. We understand and help the business person realize that in some cases and especially in this situation there are things out of their control. We can help identify ways that they can save the family home, realize that their children won’t have to pack up and move to a different school. I have come to realize over the years that the sooner someone meets with us, on a confidential no obligation basis, that we can identify options as opposed to “the bank is demanding and calling our personal guarantees.”
So while writing this, I received an email, “Hey Steve . Unfortunately I’m not going to make it through Covid-19. We listed the business a couple weeks before the outbreak in Canada, however I don’t see any action in the near future and it’s time to get out.” We will be able to assist in identifying the path forward and knowing the individual help them recognize that while the business may close, they have the skills and ability to be successful in the future.
There are a number of factors and implications to address when making decisions concerning a course of action regarding your business. At S. Funtig & Associates we are here to help and can schedule a telephone or video conference call or arrange to meet with you respecting the need for social distancing.
Remember the people of Chatham and Windsor are strong, we will get through this together!