Accountancy Ireland | August 2020

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In 2010, Neil Hughes set out the seven Cs framework to help businesses navigate the great recession. Fast forward a decade,

and these principles remain more pertinent than ever.

Are you familiar with the old story of the two hikers in the woods? They come across a bear

who starts to chase them. One hiker stops and begins changing from hiking boots to running shoes. The other hiker says, “I can’t believe that you think you will outrun the bear just because you change your shoes!” The first hiker replies, “I don’t need to outrun the bear. I just need to outrun you!” The moral of the story? When trading through difficult times, those who are best prepared are most likely to survive.

Considering that the current community mentality and enthusiasm is likely to fade when the effects of the recession start to bite and businesses are striving to outperform their peers,

this sentiment is even more significant. Many business owners are currently trying to adopt the best strategies to save their businesses. A common characteristic in many business failures is mismanagement. Although not deliberate, many people do not take advice, make the wrong decisions, and incur avoidable losses.

With so many external factors at play, how can you best position your business on the road to recovery? What course of action do you need to take to ensure that your firm not only survives, but emerges stronger than before? The seven Cs present a blueprint for business owners and managers who are working hard to beat the competition and overcome significant challenges.

1COUNSELMaking well-informed and rational decisions under increasing pressure

and uncertain conditions borders on the impossible, which is why seeking counsel at an early stage is the first step to pivoting a business during a crisis. How has my business been affected by the fallout from the COVID-19 pandemic? What financial shape is it in? How can I tackle the ‘here and now’ while turning my focus to the future? Avoid falling into the trap of taking unqualified advice; seek guidance from a select group of professionals such as your Chartered Accountant, your solicitor, and your funder. Work with them to formulate a practical and comprehensive recovery plan.

The seven Cs of business recovery

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45BUSINESS RECOVERY

2COMMUNICATIONDon’t underestimate the importance of honesty,

especially when things are uncertain. Communicate your financial position with the people and groups to whom you are indebted – the taxman, lenders, landlords and suppliers. You will be amazed at the goodwill this generates. Not only are your creditors likely to appreciate your honesty, but it will also take some of the pressure off, which may facilitate better decision-making. Unbridled transparency builds trust, which will help you maintain your integrity. This, in turn, will buy you more time and with time, many things become possible. Start with the truth and go from there.

3COOPERATIONThe current crisis has changed the way we work. With businesses

now forced to rely on different forms of communication, relationships between business owners and employees may have changed. Now is not the time for ambiguity. Your staff play a crucial role in helping your business stay afloat during unstable times. Communicate with them clearly and frequently. Be forthright about the condition of your business; they will respect you for it and are likely to show loyalty in return. Failure to secure their cooperation will significantly dilute your business’s chance of survival.

4CLARITY OF PURPOSECreate a new business plan that will provide greater clarity on all

functions from marketing, finance and accounting to operations, products and services, and distribution. Adopt an entrepreneurial attitude. While there is no doubt that this crisis has presented grave difficulties, it also provides plenty of scope for innovation. Business leaders are stepping out of their comfort zones and thinking outside the box. There are opportunities to be found if you look hard enough. Ask yourself: “how can I ensure my business not only survives, but thrives?” Rediscover the sense of excitement you felt when you first set up your business. This will drive you forward with clarity of purpose.

5COSTCost reduction should be a crucial part of your business strategy.

Many business leaders will find themselves implementing cost-cutting measures in response to declining revenue, profitability, and reduced access to credit. Instigate a company-wide series of targeted cost cuts. Don’t make arbitrary or general cuts that may adversely impact long-term goals. The main areas for potential savings in any business lie in eliminating waste, seeking out and demanding the best prices for supplies and services, and carrying out certain tasks in-house that were previously contracted out to third parties.

6CASHA swift recovery often boils down to one thing: cash flow.

Credit controllers work hard to bring in the money and are instrumental in keeping businesses ticking over. Cash control means releasing the ‘lock-up’ of your business (i.e. the latent profit that is locked up in your stock, work-in-progress and debtors). It is a lack of

cash that causes many businesses to fail during times of hardship, not a lack of profit. And even profitable businesses will fail if they run out of cash.

7CUSTOMERSWith normal operations out of whack, it may be harder for

organisations to focus on exceptional customer service. However, now more than ever, customers are exceedingly important. Engage with your customers, ensuring you are adapting to their changing needs. A business owner must strive to continually ensure that the customer’s experience of a product or service is as pleasant, straightforward, and satisfying as possible. During an economic slump, it is your customers who will carry you through.

Neil Hughes FCA is Managing Partner at Baker Tilly Ireland

and author of Beating the Recession: The Seven Cs of Business Recovery, which is published by Chartered

Accountants Ireland.

The seven Cs of business recovery

Examinership

A second chance for companies in distress

Did you know?To date, examinership has resulted in the rescue of well over 1,000 companies and tens and thousands of jobs.

What is examinership?It is a corporate recovery mechanism for insolvent companies or companies that are about to become insolvent. Examinership provides court protection of up to 100 days and is suitable for businesses that have a reasonable prospect of survival. Such prospects typically include securing investment or refinancing as well as the writing down of creditor balances.

What is the primary purpose of the process?To save the corporate undertaking and thereby preserve employment. The upside from the process is significant. For examinership to succeed, creditors must fare at least as well as they would on a liquidation. In many cases, companies that would typically receive nothing on winding up will secure a dividend and preserve the trading relationship with their customer under an examinership.

Is it ‘business as usual’ for the company when they are undergoing examinership?Yes, the business continues to trade as usual. However, historical liabilities are frozen and cannot be paid.

The current crisis has led to business rescue returning to the forefront in Ireland.