As the Coronavirus (“Covid-19”) continues to make a significant impact across the globe, it comes as no surprise that the supply chain is set to be affected, but what can you do to minimise this impact?
Background
With increased demand for cheaper products, China is without doubt the go to place for manufacturing. Whether you sell clothes or build cars, it’s highly likely that at least part of the supply chain will have originated from China. So with China shutting down due to the Covid-19 outbreak, the impact will be felt worldwide.
It is anticipated that the difficulties for the supply chain will start to filter through during March - the Chinese shutdown commenced at the end of January with Chinese New Year and most goods are shipped overseas. The journey from China to Europe generally takes 30 days so supplies will start to reduce quite quickly in the not too distant future.
What does that mean for your business?
Well it depends on what you manufacture or sell but given what we’ve said above, there will be some disruption.
There may be an immediate cash impact if you need to purchase goods from elsewhere, especially if you don’t have favourable credit terms with alternative suppliers. There might be an increase in the cost of goods which will also impact on your cash flow, and turnover may also be affected if you are unable to source alternative supplies. In the meantime, you will still have to meet your existing overheads, resulting in a squeeze on cash.
How do I limit the disruption to my business?
Reviewing your supply chain to understand where your components come from will help you to identify where issues are likely to arise. Once you have highlighted any areas of concern, then you can start to ascertain whether there is an alternative supplier that you can use instead.
Carrying out stock checks would be another area upon which to focus. Not only will this help you to identify and understand your purchasing requirements for the immediate future, it will also assist you in your supply chain review whilst also giving you an opportunity to highlight any unwanted stock that you might be able to offload to someone who needs it.
Additional cash requirements
There is a chance that you might need additional cash for a period, especially if your turnover is affected by the Covid-19 shutdown. Your ability to collect in your debtors may also be impacted if your customers are affected in a similar way.
Preparing a short term cash flow forecast will help you to plot the peaks and troughs from a cash perspective, which will in turn highlight any cash holes in your business.
Once you have been able to identify the pinch points, an exercise in “smoothing” can be carried out. This is where you look at larger monthly payments and see whether you can break them down into more manageable chunks for a short period so that your cash flow is more consistent.
If you still need additional cash, then the first port of call should be your existing funder - their rate of borrowing is likely to be more favourable than the alternative lenders and a quicker option too. However, if they are unable to help then we have access to a wide range of lenders that can step in and provide the support needed quickly. These lenders can assist with working capital, stock buying, asset purchases or property finance (our Corporate Finance Manager Steve Dinsmore can talk through your requirements and potential funding options.)
In summary
Taking action to establish whether your business will be affected by the impact of the Covid-19 outbreak is a sensible thing to do. Knee-jerk decision making will not help your business in the longer term so taking measured steps will help you to maintain consistency. Reviewing the cash implications on your business early will help you to weather the potential storm but if this exercise identifies additional funding requirements for your business, then please get in touch with us.
