How to Protect Your Business from Covid 19 Crisis?

‘The Covid-19 crisis is not an isolated pandemic, instead a long tail interconnected incident with extreme levels of uncertainty, which is well beyond the experience of business leaders, verily a test for many business leaders on how they think and respond to shape strategy’

Global Slowdown

Social-distancing measures, large-scale quarantine centers, travel ban, closure of sea and airways, lockdowns, curfews etc … had led to a sharp decline in overall consumer and business spending which experts predict to continue till late Q2, head winding towards a recession. 

Although the outbreak is expected to come under control in most parts of the world by late Q2, the aftermath effects tend to show ripple effect till late Q3.

Demand suffers as consumers tighten spending/ (spending to confine on the very essentials) thus businesses loose revenue and workers laid off, business investments frozen, corporate bankruptcies provoke, significant pressure on the banking and financial system given the low interest rates and loan moratoriums granted and many more pessimistic challenges are said to give rise from an economic perspective, thus effecting individual businesses.

In order to curb the negative outcomes of this outbreak, businesses, especially SME’s should plan well ahead, understand which scenarios may likely give rise. This process of planning for different outcomes is referred to as Scenario Planning

Best Planning Strategy (Scenario Planning)

• In a macro environment catastrophe as this epidemic, adaptability of all plans is key
• Preparing for the worst and readjusting if situation improve faster would be ideal
• Consistent communication with the team to discuss on business updates prioritizing employee safety first, business continuity and liquidity to follow.
• Proactive decision making to be conducted instead of reactive decision making, expecting worse outcomes as mentioned below.
  • Possibility of the pandemic to reduce the business runways significantly
  • Loosing out key clients
  • Receivables getting delayed resulting in cash flow difficulties
  • Difficulties in getting new businesses/orders
  • Supply chain disruptions

Company Restructuring/ Cash Management/ Cost Reduction

When there is a long tail of uncertainty, cost management is a vital factor. Some organizations might manage cost based on the need of the hour through slashing  some cost to almost near zero or reducing a significant portion of cost till business gains back momentum , yet again depends on factors such as strength of the business in terms of cash and need to uphold  business reputation.

Here are some areas which cost management is required

• Work In Capital Management

Considered to be the cynosure that business leaders would focus at the very outset of managing cost.

Measures would be to match inflows with outflows thus cutting down the so called (FAT) components or unnecessary cost. If the so called (FAT) is legally/contractually obliged seek for measures to defer payments. 

• Receivables management

Expedite the process on cash collection from receivables by offering some incentives such as discounts on quick payments and worse case installment-based payments

• Payables management

Try to speak to suppliers on wave offs as much as possible or relief periods to pay. (depending on the long-term relationship built with suppliers) 

Get the consent of lawyers/industry experts in tackling contractual obliged payments.

• Inventory holding

Try to avoid building up on inventory which will be subjected to holding cost and opportunity of cash. Experts say it may be okay to let go on small demand vs trying to build up on inventory. 

• Rental

Seek for opportunities to reduce/avoid this upon discussion with the landlord. Worse case defer such payments. (Use of Force Majeure may be required if it’s part of a contractual obligation)

• CAPEX spending

It would be rational to freeze capex expenditure and focus on current operation till business gains momentum and demand becomes stable.

• Marketing

 Technically you would not need marketing expense since consumers are reluctant to spend(exception on essentials and pharmaceuticals),but some businesses would consider spending a minimal amount in order to uphold business reputation while a few large firms will try to spend on a few  social responsibility projects and use free marketing strategies to promote them.

• Other Restructures

No new hiring till recovery, existing employees are shared additional responsibility

Coordinate with team leaders on payroll solutions-be pragmatic but humane, focus on people    cost to be undertaken after all other costs are reviewed and dealt with.

Relook at the roadmap-rethink of alternative strategies/navigations in plans required for the long-term goal.

Discuss waivers and moratoriums with the mindset “no costs are really fixed”(especially G&A)

Fund Raising

As perceived for the worst outcome it is most important for startups to elevate its runway through fundraising. A good round of fund raising should be able to increase current runway by at least 12 months.

No matter how lucrative and optimistic your business may be, an investor will not rush into an investment due to the investor’s pessimistic mindset and other interests (holding onto liquid cash for precautionary motives) and therefore may it be a PLC or SME, it is always advisable to progress with a “decreasing familiarity” as mentioned below

1. Existing investors (If available)
2. Investors who you have well known or has/have been closely associated with your business and has some track on its performance.
3. Wider outreach

Employer/ Employee Relationship

Employers could use this unprecedented tough time to test productivity/efficiency of a team or the organization as whole in the absence of physical presence and ambiguity on strategy. On contrary this is a self-test on each employee/team leader towards contribution on team goal, dedication, tech savvy, virtual communication/listening skills etc…

In order to uphold the upbeat of the team which has declined mentally and socially  as a result of self-isolation and lockdown, some organizations offer online team competitive challenges, founder or HR folks (something non related to work).WhatsApp groups sharing information related to basic essentials or positive news on the pandemic is yet another useful tip to uplift  moral and upbeat. 

• Staffing strategy

Re alignment of roles– Identify employees with less work (less productive due to the catastrophe) at this point of time, agree to restructure those employees with other roles.

Defer appraisal-It would be rational to push back increments, bonuses or any other planned cash appraisals (being well aware on contractual obligations) and promote non cash appraisal methods instead.

Pay reduction/deferrals-Better if this could be a voluntarily undertaken move. If this strategy is to be implemented it would be best to allocate on the “descending order of the organizational pyramid” as a bottom up approach of pay cut or deferral could impact moral of employees, especially ones who have just started their career.

Alternate working day-Option of negotiating with employees on alternate days to report to work and the pay is adjusted accordingly. This is yet again an option mostly for employees hired on contract basis on which the contract is not on track as expected due to the pandemic.

Furlough-Furlough in simple terms is to lay off employees on a temporary basis, mostly on temporarily non performing arenas. This could be on no pay or an adjusted pay depending on management discretion. Noteworthy- A possible option but less preferred.

After thorough consideration of the above options, if the organization still needs to reduce its cash burn and the only possible option is employment layoff the option should be exercised through guidelines of a lawyer or an industry expert. 

Work From Home Process:

A few tips for business leaders/team leaders to follow when dealing with employees/fellow team members

Plan and define ownership, timelines, and document completion of work.

Ensure commitment from the team is always upheld 

Demand accountability, do not demand an 8- hour work day, allow team members flexibility in their working schedules but ensure they are accountable on the task entrusted to them.

Ensure individuals are clear about their roles and as a leader you set clear and fair expectation from your employees working remotely.

Two daily stand-up meetings with the team (One in the morning  and one at the end of day )

Ensure maximum documentation/proof of work without relying on verbal communication.

Managing meetings while working remotely:

Employees to join on video calls which helps improved attention.

Ensure meetings are of two-way communication (Listen to everyone and be concerned on unheard voices)

Engage in activities to understand if everyone is on the call or if anyone has dropped-off/ facing technical issues by pause breaks.

Get the team together on celebrations like birthdays or any other exciting updates.

Send out appreciative emails to boost morale.

If the team has a routine way of working such as work rituals or a start of day with a cup of coffee, try to enact them if virtually as well possible

Do not express frustration in group meetings. Provide personal feedback.

Ensure everyone is clear with their allocated roles by re inquiring from them, do not assume that they might have understood.

Business Continuity Plan (BCP)

• Preparation

By being well versed with the facts, business leaders should play a pivotal role in preparing for the pandemic. Some actions are listed as below-

Creation of a leadership team-Team leaders and Management of the organization to be on it and respond to changes and key matters swiftly.

Ensure “Critical Success Factors” are less hit by pandemic– Critical operational activities, key    customer, vendors, markets and business reputation.

Provide necessary infrastructure to “Work from home”-Technological Infrastructure-Laptops, online tools to coordinate with fellow team members, provisions to coordinate with client.

Remote IT help desk if any employee require assistance.

Creation of a centralized back up system for documentation storage, team member reference.

• Protection 

While there is no guarantee that employees will remain unharmed, there are some acts that businesses should enact to ensure the wellbeing of each and every employee as listed below

Frequently update employee on protective measures. 

If your job is an essential service 

(providing of perishable essentials /pharmaceuticals suppliers/Grocery delivery networks / telecommunication)

1. First and foremost, encourage all delivery members to undergo a test to confirm that they are not infected.
2. Ensure to provide necessary transport, coordinate with legal bodies to provide “Curfew passes” for transport if required.
3. Safety equipment such as masks, sanitizers and safety clothes to be provided for all related employees to ensure safety of both the employee and the end customer.
4. Consider providing financial incentives for the risk the employees undertake.

• Response

As outlined at the inception of this area it is key for business to respond swiftly to keep the “Critical Success Factors” unharmed or at minimal harm. Ways in which this could be done are listed below 

Key Operational Activities

Daily or twice a week tracking and reviewing performance.

Re-allocate resources if required.

Meeting with team leaders to discuss on the performance/consideration of plan changes as and when required.

Markets, Business Reputation 

Make information available to public on the areas your firm will be rendering or not rendering services or products during this period (locations served/not served, products served/not served)

If you are to deliver any additional services based on the need of the hour kindly provide all necessary information on the services (book keeping firms, tax consultancy firms can help their clients with services to obtain reliefs issued by the government authorities) 

Customers

Practice empathy and have transparent communication on collective supports on topics related to the need of the hour. (Tax relief granted, inventory planning advises)

Flexibility in payment plans if requested, but in a win-win situation.

Vendors

Identify priority of vendors and engage in positive and forward-looking communication (supply chain disruption may be out of his control) and you need to understand and be supportive.

Set up payment plans based on priority, engage in constructive dialogues on possible wave offs, request for concessions

Key Stakeholder Communication

Avoiding inconsistent, malicious information being shared with customers, suppliers, banks and other key stakeholders is a need of the hour and businesses need to stress on confident, firm and transparent communication on the aforementioned areas.

•  Business to Business

Understand the common challenges face and be humane to work with solidarity on common problems such as payments, receipts, shared services (find collective solutions)

Ensure to deal with utmost professionality, seek legal advice and expert ideas if required so as to ensure business reputation is not tarnished either ways

Constant health updates and blogs on tackling/overcoming the situation with factual information is highly encouraged.

• Bank/lending institutions

Get the advice of industry experts/other founder members to choose the best option of banks/lending institution that may help you in this process.

If a loan is required prepare a forecasted Profit and Loss, Cash Flow with the advice of industry experts, tax advisors in order to ensure the maximum use of the reliefs are taken into consideration and are in line with required standards.

 Provide accurate information on the current business position as opposed to exaggeration. 

• Mergers and Acquisitions (Investors)

Get the advice of industry experts/other founder members who have been successful in this endeavor.

Manage cash and liabilities very carefully, especially the key liabilities such as salaries and accounts payable, existing bank loans etc… as these will be the areas an investor will be concerned greatly.

*Communication with stakeholders such as Vendors, Employees were discussed prior    

Tax Extensions Made by the Government of Sri Lanka in Order to Help Businesses

Extension on Transfer Pricing Disclosure  

• Extension of Submission Transfer Pricing Disclosure Form extended up until 30th April 2020.

Tax payers who had submitted Tax Return through e-service can upload the TPDF to the RAMIS system.

Others advised to email a PDF copy of the TPDF to the below email id’s

Senior commissioner- (Tax payer services) -weerakoon.lmc@ird.gov.lk 

Commissioner- (CDMU)-perera.mkpjss@ird.gov.lk

VAT payment Deadline

• VAT payments for the month of February 2020 which is due on March 20th and VAT payment for the month March 2020 which is due on 20th April 2020 is allowed up to 30th April 2020.

VAT deferment Facility at the point of customs

• Validity of extension letters (which will expire before 30th April 2020) issued with regards to credit vouchers due against the VAT have extended by one month from the expiring date.

Temporary VAT

• If any temporary VAT registration issued and period of validity expires prior to April 30th 2020 as per the certificate the validity period has been extended till 30th April 2020.

Submission of VAT return

• Submission of returns has been extended up to 30th April 2020 for those who could not file for February, which should have been done on or before 31^st March 2020 manually or through e-services 

Changes that have been made regarding Stamp Duty.

Stamp Duty payment and submission of return for the Quarter ended on 31st march 2020 has been extended up to 15th April 2020 for the following parties.

• Any person issuing insurance policy.

• Any authority issuing license.

• Any service provider, on the presentation of a claim, demand or request for the payment of any money on the use of credit card.

• Any Employer employing more than hundred persons accepting receipts for payments made to the employees.

• Any other person issuing any other instrument of a category, having regard to impracticability or inexpediency of Stamping instruments of such category, at the time and in the manner prescribed.

Changes to liquor related businesses.

• Liquor license holders are informed that the validity of period of Temporary Tax Clearance 

• Certificate relating to liquor license (which will be expired before 30th June 2020) issued by the IRD has been extended up to 30th June 2020.

Changes on WHT 

• All WHT payments for the month February 2020 and March 2020 is extended up to 30th April 2020.

Changes made in regard to VAT registration and Extension.

The following changes have been made regarding extension of VAT period 

• Persons registered under section 22(7) of the VAT Act are required to submit following documents to Senior Commissioner (Taxpayer Services) through siyaan.msm@ird.gov.lk in order to obtain further extension for the period.

• Following documents should be presented in order to obtain the extension.

• Request letter signed by the Owner/Partner/Director of the Company.
• Scanned image of original of the first approval.
• Scanned image of original of the last issued extension letter.

The following changes have been made in regard to VAT Registration.

• Permanent Registration, Person who already have a Tax Identification Number (TIN) and who wish to obtain Permanent registration can apply through e-facility available at www.ird.gov.lk.

• Temporary Registration, person who already have TIN and who wish to obtain Temporary VAT registration can email the scanned image of duly filled application signed by the Owner/Partner/Director  of the company together with the importation and two contact numbers for any clarification if required, to Commissioner ( TAX registration) through nanayakkara@ird.gov.lk copying to desilva.apt@ird.gov.lk. 

• Persons who does not have obtained a TIN are requested to apply for TIN through e-service facility available at the IRD web portal and then apply for temporary VAT registration above.

Changes made to Tax Residency Certificate (TRC)

The following changes have been made in regard to TRC.

• A request for TRC should be made to Commissioner – International Tax Policy to the email Fernando.oph@ird.gov.lk 

• Following documents Should be provided;

• Name of the Person.
• Type of Person – Individual/Company/Partnership
• TIN issued by Inland Revenue
• Current address
• Official email address of the person if any
• Business activity of the person
• Reasons for applying for TRC 

• If a TRC has already been issued for the previous years, attach a scan copy of that certificate

With the coronavirus spreading over the world, the government had initiated relief schemes such as working capital loans for businesses hit during this phase. Refer our guide on Everything You Need to Know About Working Capital Loan.