We spoke to the local law firm about how businesses can become more resilient.
Chris Drinkall is the Head of Dispute Resolution at Rollits, a department that specialises, amongst other matters, in insolvency, debt recovery and supporting businesses in a variety of ways. The current economic landscape is a difficult one to navigate due to rising prices, so we had a chat with Chris about what businesses can do to tackle rapidly increasing overheads.
“It is difficult to think of any business sector that hasn’t been affected by the pandemic in some way,” said Chris. “There are some that have thrived during the pandemic, but a lot have not. With Brexit, there was at least a period of preparation, whereas with Covid, that just didn’t happen. Everyone was working away as normal, wondering how life would be affected by increasing Covid cases in the UK, and then on 23 March 2020, the start of the UK lockdown, the world changed overnight.”
Businesses found that they were suddenly unable to operate as they always had. For example, some businesses found that there was a complete block on the ability to manage inventory due to social distancing, there were knock-on supply chain delays that greatly affected productivity, and that in turn had an impact on service delivery. Every sector found itself affected in one way or another by the pandemic, and this inevitably led to financial issues.
Measures were introduced by the Government in March 2020 to mitigate the financial impact of Covid on businesses. These included the introduction of the furlough scheme, restrictions on the ability to issue winding-up petitions, and preventing commercial landlords from being able to forfeit commercial leases on the basis of rent arrears. These measures have now been withdrawn, but the financial impact of the pandemic is still being felt by many. So what, if anything, can businesses do to get through these difficult times?
“There is unfortunately no ‘one size fits all’ answer”, says Chris. “Every business will have its own challenges. That said, there are certain steps, or habits, that all business owners should at least be considering. They will seem obvious, and most business owners, if they had the time to sit down and take a breath, would almost certainly identify them as steps that they should be taking. However, most, if not all of us, are great at pointing out the obvious to others, but blind to it when it affects us directly.
“There’s only so much you can do to stop bills from going up, so it’s important to get support, whether financial or otherwise, where you can.”
A business loan, if available, may provide financial assistance, but there are also grants available for helping businesses to achieve sustainable growth. Chris points out that in addition to there being funding opportunities, there are also organisations that provide free advice and mentoring that can help your business to become more resilient. An excellent example is the Hull & East Yorkshire Local Enterprise Partnership (HEY LEP), which offers grants and loans which enable businesses to invest in the resources they need to help them grow, whilst grants of up to £5,000 are also available through the #GrowMyMSE Grant scheme which covers the costs of working with experts to achieve long-term growth. Additionally, For Entrepreneurs Only is a goldmine of wisdom and online toolkits designed to help businesses thrive.
“All businesses should be keeping an eye on income and expenditure, and many will be looking to see where they can better manage their costs.” says Chris. “Few businesses own their premises, so a major expense for many businesses will be rent. The pandemic has led to many businesses realising that they just don’t need the amount of space that they currently have. If a business is in that position, then it may wish to look at whether the lease contains a break clause that would enable it to terminate the lease early. Another option may be to assign the lease, sublet the premises, or negotiate a surrender of the lease. There are, however, a number of potential pitfalls that the unwary can inadvertently fall into, so legal advice should be taken before taking any of these steps”.
Other less palatable measures should also be considered: “One of the biggest expenses of a business will be its employee costs,” highlights Chris. “The pandemic has led some businesses to realise that not only are their business premises too big for what they actually need given the post-pandemic prevalence of hybrid working and hot-desking, they also probably do not need the same number of employees. Redundancies is not a nice subject to talk about,” acknowledged Chris, “as at the end of the day we are talking about people losing their jobs, but it may be the best course of action for the business as a whole.”
Chris was also keen to stress, however, that businesses should not forget the importance of good employees: “Good people make a business. Even sole traders don’t act in complete isolation, they always have someone helping out, somewhere. Without good employees, a business won’t succeed, it is a simple as that, so it is crucial that businesses take care of their staff. It is an area where complacency can have a particularly significant impact on a business. If good people leave, it can be very hard to fill the gap they leave behind. There is the immediate financial implication of someone leaving – the idea that the employees that remain will pick up all the work that a departing employee leaves behind is a fallacy – but the damage to morale caused by good staff leaving, can have much greater knock-on financial implications.”
During the pandemic, a particular problem for many businesses was the inability to get their hands on materials and/or products that they needed to produce their own goods, or provide a particular service. Businesses that relied on one or two main customers or suppliers found themselves simply unable to operate. Those businesses that had a wider pool of suppliers and customers, on the other hand, had more options available to them.
Continuing on the theme of relationships, the COVID-19 pandemic brought to the fore the importance of maintaining relationships that are critical to a business. Suppliers, couriers, landlords/tenants are all cogs in the machine, and the breakdown in just one of these relationships can cause the whole business to seize, having dire consequences.
“Communication is key,” says Chris. “Picking up the phone, or better still, going to see someone and having a face-to-face discussion with them about a particular issue is, in my experience, much more likely to produce a positive outcome than simply doing nothing. It is far better to let people know that a product or payment is on its way and may be a week late, or to explore whether a payment plan can be set up to clear a debt, than to just keep silent. Doing nothing rarely ends well, and can often lead to solicitors getting involved. Having an amicable chat and coffee with a supplier to try and work through an issue will always be cheaper and less stressful than having a battle through lawyers!”
Chris also said that a top priority should be staying in regular communication with your bank, loan providers, and other financial stakeholders. People tend to be more patient and tolerant if they feel that they are being kept in the loop. It could also result in opportunities arising that will save you money or make cash flow more manageable.
The importance of taking professional advice, when appropriate, cannot be understated, in Chris’ opinion: “My colleagues and I often find ourselves speaking to business owners who tell us about a particular end result that they want to achieve, and the various steps that they have already taken to get there, but who have then found themselves hitting a major obstruction, whether that be a dispute with a third party, funding issues, or some other issue, which could end up completely derailing their plans, or costing them thousands of pounds to overcome. Often, these issues are ones which could have been foreseen, and had professional advice been taken at the outset – and in some cases that could have been by way of a 15-20 minute phone conversation – these issues could have been either avoided entirely, or steps taken to minimise the effects of these issues.
“Times are tough for many people right now, there is no doubt about that, but there is invaluable help out there for businesses. The old adage that ‘every day is a school day’ has never been more appropriate, as we all adapt to the post Covid business world. Those businesses that are open to new ideas, who communicate, and who take and are receptive to advice, are the ones who are most likely to ride out the current storm and come through the other side.”
To find out more about the many ways Rollits can support your start-up, SME or not-for-profit organisation, take a look at their legal services for businesses.