Why CFOs and FDs Should Think Carefully Before Jumping Into Restructuring Right Now
There is little doubt that for the vast majority of businesses, the coming months, and possibly years, are going to be difficult. The Covid 19 crisis will leave its mark long after the health emergency is over.
Even in the relatively early stages of the crisis, businesses were seeing a major impact on their finances. For some CFOs and FDs, formal restructuring may seem like the way to go, especially if the situation continues to worsen. However, this may not be the best option while the pandemic is still upon us. It may be prudent for finance professionals to give careful consideration to all options, including the relief that has been made available by the UK government.
Relief available to businesses at this time
Right now, businesses across the country are rapidly running out of cash reserves. Research suggests that 57% of firms have three months or less cash in reserve.
This is obviously a serious situation that the government has attempted to at least partially address with the introduction of the Business Interruption Loan Scheme. However, many businesses are struggling to access this cash. There is also a danger that some of these loans may require personal guarantees from directors and CFOs. This type of guarantee represents a great deal of risk at this time.
In general, businesses may be better advised to consider furloughing staff and taking advantage of the Coronavirus Job Retention Scheme. Although, the scheme itself is proving to be difficult to implement.
Businesses also have the option of deferring VAT payments that are due between 20 March 2020 and 30 June 2020. Although, this only defers the financial obligation to a later date.
These options may not be ideal for businesses but they represent a better choice than jumping into the decision to formally restructure.
The danger of restructuring
For many businesses, formal restructuring will happen at some point after the Covid 19 crisis is under control. However, for most businesses, now may be the wrong time to be undertaking a restructuring process. The main reason for this is the level of uncertainty that exists. No-one knows how long the health crisis will continue. There is also a significant amount of uncertainty about whether the measures introduced by the government will be sufficient.
Given that so much is uncertain, now may not the right time for FDs and CFOs to make panic decisions. Businesses can make use of any support that is available and suited to their needs. They also need to cut costs as much as possible. Taking these actions, and avoiding restructuring right now, would make sense. As does keeping a close eye on the ever-changing situation with Covid 19 and its financial impact.
When the situation becomes more certain, in a few months’ time, FDs and CFOs will be able to make more informed decisions. It’s at this time that businesses can make more solid plans, including the option of restructuring if it’s the best solution for them.
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Date Posted: April 16th 2020
Posted By: Mark Masson