Coronavirus scenario planning and stress testing: critical steps for businesses

The current business climate is a complex one – and it is undermining many businesses’ key trading assumptions. It is anticipated this will be a short-term issue, with the empirical evidence from China indicating our lives should normalise within two to three months of the initial outbreak of coronavirus

We are seeing businesses face scenarios not seen in recent years. The Government has outlined several support mechanisms to support British businesses and their employees; including HMRC time to pay and EFG loans which should assist in mitigating some issues caused by coronavirus.

The situation is evolving quickly but the following steps could assist in mitigating the issues that businesses may face.

Key performance indicators
Monitor key performance indicators, notably daily sales, cash collection etc to identify any rapidly deteriorating situations. This will ensure you are accurately informed of the impact on your business and allow you to review the available options to counter any issues.

Cash management
Many businesses will never have been presented with a set of events in which day to day cash management is required. In the current environment preparing a daily receipts and payments cashflow combined with a medium-term integrated forecast is a sensible step. It will allow you to manage cash to mitigate any issues and ensure no short-term funding issues.

Business operations 
Review and critically appraise your customers and supply chain. Identify who may be most at risk, the potential impact on your business through stress testing, and how you could lessen the shock.

Stress test
Stress test your forecasts for a variety of worst-case scenarios, identify what tools you have to manage cashflow and the key timelines. In a worst case, work out the timelines and cash impact of potentially trading out.

Stakeholder engagement
The Government has clearly stated it will take all steps to address the issues to businesses of coronavirus. They have put in place several practical steps to ensure UK banks and HMRC are supportive in the current environment. It is important all stakeholders are engaged with appropriately so that businesses avail themselves of the available resources and reliefs.

For more information on the steps you can be taking to protect your business, please contact

Damian Webb Damian Webb

Partner

Allan Kelly Allan Kelly

Partner