We all hope that the global panic over the Covid-19 pandemic turns out to be a temporary phenomenon. At this point there is no certainty how this will play out, so we had better implement emergency plans to help guide us through these troubled times and make sure we emerge from this stronger and better prepared for any future emergencies of this nature.
Many companies have disaster recovery plans which were gathering dust for years before the Covid-19 crisis struck. Smaller accounting practices and businesses are likely completely unprepared for this crisis, and all of us are learning as we go.
Some companies and publications (such as AccountingWeb) have shared their plans, and it might to useful for us to examine some of the key recommendations being implemented around the world – and this is a global phenomenon, not something peculiar to South Africa. Hence, we can gain from the best practices adopted around the world.
Here is a summary of some of the key recommendations:
- Take the crisis seriously and adopt social distancing: This is common sense and appears to have been widely adopted across the world. The obvious preventative steps are to maintain sanitized living and working areas, wash hands, and avoid social contact as much as possible. Companies such as Microsoft and Google are asking staff to remote work until further notice. Fortunately, the internet makes this possible and is something accountants are easily able to adopt.
- Maintain contact with clients: As trusted advisors, clients will look to accountants for guidance. These are extremely worrying times for all businesses and employees. Many wonder whether they will be able to make payroll at the end of this month, and workers worry whether they will have a job when the epidemic is over. The advice from accountants should be to plan for a business contraction that could last months. This means cutting down non-essential spending such as travel and entertainment. Those with cash flow problems may have to ask employees to take a temporary cut in pay. Supplier terms will have to be renegotiated – easier said than done in an environment where suppliers are facing the exact same cash flow difficulties. Which brings us to the next point.
- Assess what financial assistance is available from banks, government and suppliers: FNB, for example, has indicated that it will continue to support the SME sector with lending, notwithstanding the spread of the virus and the threat that this poses to the economy. Government is likely to announce some relief and financial assistance to struggling businesses. It will have to come to the party to avoid mass layoffs and business failures. Get in touch with the banks and find out what assistance they are able to offer. Be a source of information to your clients and stay on top of the latest developments as they affect their businesses.
- Apply emergency conditions: These are not ordinary times. We are in the midst of an unprecedented emergency that require emergency conditions. That means increasing marketing and promotional outflow to clients as a first step. Many companies cut back on marketing in times of emergency (not a good idea) which ensures that they come out of the crisis in a smaller and weaker condition than when they went in. The way accountants can increase their promotional efforts is to send out regular briefings to their clients (without adding to the tsunami of negative news already out there). Do this by keeping a daily watch on opportunities and events that could be of assistance to your clients so they can emerge from this crisis in a stronger position. Your marketing efforts can be inexpensive, such as by email. But as mentioned in 2 above, maintain contact with clients and in fact increase your contact with clients.
- Avoid late payments: As AccountingWeb correctly suggests, urge your clients to avoid late payments for the obvious reason that this has reputational consequences in the short-term. In cases where companies are struggling to pay their bills, suppliers may be willing to negotiate more favourable terms. Where possible, make sure bills are paid on time. For accountants, make sure you get yourself pushed to the front of the payment queue, and you can do this by being a vital and trusted advisor.
- Build financial cushions: Any company should have sufficient reserves to survive three months of no income. This is prudent financial management. The shock of this latest virus outbreak will force most companies to look – and plan – far more conservatively for the future. A monthly set-aside of 5-10% of net income is a good rule of thumb for future emergencies. These reserves have strict policies delineating the circumstances in which they can be used, and this does not include a month-end cash crunch. Only force majeure incidents such as the Coronavirus can release these reserves for use.
- Maintain regulatory and tax filing deadlines: This is part of maintaining goodwill. Do not allow clients to slip into bad habits by being late in filing VAT, CIPC or other required returns. This is a time to build rather than diminish reputational excellence.
- Maintain good communication with staff and suppliers: First off, keep staff briefed on the impact of the crisis on the business and gain their support. You may have to ask them to take a temporary pay cut. Reward them when business conditions return to normal. It will not be difficult to get staff support, as they will no doubt be fearful of losing their jobs and remaining out of work for some time. Adopt the same approach with suppliers, keeping them honestly and frankly updated on business conditions. You may have to ask them to accept staggered payments, and suppliers will likely be sympathetic to this.
- Check insurance policies – As AccountingWeb recommends, make sure check any insurance policies your clients may have – would they, or their staff, be covered in any sickness claim? This is the value of having keyman insurance.
- Plan for the post-crisis “return to normality”: While adopting emergency planning, also keep in mind the post-emergency return to normal trading conditions. Big capital spending items may have to be put on hold for a few months, but try to discourage clients from cannibalising funds earmarked for expansion to meet near-term cash flow requirements. Build your relationship with the client during the emergency so that when it is over, your “capital” is sky-high and your advice and counsel is seen as absolutely essential.
Remember that that this crisis will come to an end. Let’s survive this together and prepare for the expansion that will inevitably follow. And share your thoughts….