Setting out on the road to business recovery

What do you need to consider?

Shoppers have begun to return to the high street. Pubs and restaurants have tentatively reopened their doors. The economy, slowly, has begun the process of getting back on its feet. Following the financial crisis in 2008 we saw a 6% drop in UK GDP across 5 quarters, compared to some forecasts of over double that decrease in 2020, illustrating the severity of what we’re facing. However, the big difference this year is that there is more liquidity in the market to enable innovative restructuring solutions that aid the recovery. The route to recovery is unlikely to be smooth and businesses need to be in the best possible shape for the journey – and that means focusing on four critical areas before everything else.

The country’s businesses have emerged into a new world, with different rules and customers and employees who have profoundly changed their behaviour. Digitisation has accelerated and supply chains are disrupted. Economic conditions are – to say the least – challenging, and there will be many unknowns to navigate in the months and years ahead. But there will also be many opportunities for good businesses.

Our experience working with clients over the past few weeks is that there are four critical elements that all businesses should focus on, and formulate a clear plan to address. We think of these like the wheels of a car – unless all four are in the best possible shape, even the most powerful vehicle won’t get anywhere: 

Four critical elements that businesses should focus on

Operationality

What do I need to do immediately to get back to business as usual (or whatever usual means in this exceptional circumstances)? What are the operational questions I need to answer? This means, for example, working out your new cost base. For many businesses, revenue has taken a hit so costs need to be adjusted accordingly to allow the business a fighting chance to grow again. This can be done even if revenue has halved – it’s not easy, but it’s essential for survival.

Liquidity and cash

Cash is an invaluable asset in this environment. Operational plans need to be funded, bills have to be met and any emergency government loans that have been received will need to be repaid. Liquidity is everything in the coming months. This means a laser-like focus on liquidity including the optimisation of working capital and identification of locked-in cash, and exploring all possible internal and external sources of finance.

Stakeholder management

Clear and consistent communication with a wide group of internal and external stakeholders, including employees, suppliers, customers and lenders has been essential during the crisis and could become even more challenging in the months to come. Failing to manage key stakeholders could easily derail a business.

Lenders and creditors will need particular attention. In many respects UK businesses are in a holding pattern as we come out of lockdown, protected from prohibitive actions by creditors through the temporary elements of the new Corporate Insolvency and Governance Bill. Under the legislation, creditors are temporarily prohibited from filing statutory demands and winding-up petitions for COVID-19 related debts and commercial landlords cannot evict tenants for late payment of rent. But this won’t last forever.

Strategic mechanisms

What legislative and strategic mechanisms are open to you to see you through the crisis? Could a merger or acquisition be the answer? Or divestment of part of the business? Business leaders need to think strategically and medium term, even as the immediate crisis rages.

While these apply to all businesses, the issues, questions and actions within each element could vary wildly from business to business. Even two businesses within the same sector will likely have different problems within each category, which will require different solutions. Some businesses may be growing so fast that they need to be sure not to drain cash reserves, while others may be haemorrhaging  cash because revenue has been decimated – but managing liquidity and cash effectively is absolutely essential for both.

These four elements are equally vital to survival and recovery and need to be managed simultaneously; a business could do three out of four exceptionally well but still fail if it doesn’t adequately address the fourth. Or to put it another way: If one wheel comes off, the car will inevitably crash.

Our teams are working with clients to manage all four elements in a multitude of ways, making sure businesses are in the best possible shape for the months to come. We help our clients to overcome complex, financial, operational and strategic challenges by delivering pragmatic, hands-on solutions at pace. We treat all stakeholders and individuals with dignity and respect, recognising that it is not just what we do, but how we do things that make a difference.

Over decades, we have developed market leading restructuring capabilities, the strength, breadth and depth of which enable us to deliver end-to-end solutions. We draw on the expertise of our colleagues from Tax to Consulting and across the firm to offer clients the specialist knowledge they need. Whatever your unique situation, we can help.

Contact us

Steve Russell

Steve Russell

Head of Business Restructuring Services, PwC United Kingdom

Tel: +44 (0)7980 844528

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