Business Hibernation; 3 Stark Options for Business Owners

Is Hibernating your business to survive the COVID-19 pandemic realistic? According to our Panel Experts three tough choices must be faced
A frozen window covered with frost

In this blog:

  • Hibernation – can you and should you mothball your business?
  • Restructure – slim down and survive
  • Close up – should you shut up shop and exit?

Government strategy for managing the business impacts of COVID-19 is to build a bridge helping as many businesses to reach the other side, with as much of the family wealth and business intact as is possible.

We asked John Morgan and Chris Baskerville of the Insolve Panel what the best strategies to consider now are, so you can set out your plan for the next 6 months.

Hibernation

Can the government effectively shut the economy for a period and kickstart it when ready? There is no doubt that this is a risky strategy, but it fits perfectly with the bridge-building example.

John Morgan says “I think this will be a formal measure announced by the government. With the business packages announced to date, the freeze on evictions, relief for landlords and tenants as well as a likely wage guarantee, the government hopes it can stop and start the economy.”

John’s key advice, as always, don’t wait for the Government to catch up. “Business owners must be getting their house in order so that if a mandated hibernation comes, you can make it across the bridge.” John says he is already working with businesses  that were thriving and successful only weeks ago, who are now putting up the shutters.

According to John Morgan, a business owner needs to have a thorough understanding of:

  • Their cashflow
  • Rental agreements
  • Creditors and Obligations
  • Outstanding debt
  • Staff costs and HR policies
  • Government Stimulus measures and packages

“The only way to get have a chance of surviving a business hibernation is to get fully prepared before your own, or a government forced lockdown. It is vital that business owners seek professional legal and financial advice as soon as they can so they can be confident that they can hibernate and emerge on the other side.”

Restructure

For forward-thinking businesses, John says that it could be the right time to restructure. With the stimulus in place and measures to protect tenants and borrowers in place, this may be the time to address problems your business ways facing before the pandemic. Take stock and plan for when the economy comes back online.”

If a business owner wants to trade on in some form, they have:

  • Some limited stimulus cash or rebates to access
  • Potential employee wage support through the Job Keeper package
  • Safe Harbour provisions and possible formal appointment of an Administrator
  • Potential Lease and debt payment holidays to negotiate

“Business owners should have had a laser focus on their costs; they should know their debts and obligations. They must get advice, and understand Safe Harbour, and also consider if Voluntary Administration and a special type of Deed of Company Arrangement (DOCA) is necessary.

Businesses will have some (limited) stimulus cash, loan and rent holidays they can access. And in some instances, a rent-free period for the length of the crisis. It is the perfect time to plan, to look at your operation and to make improvements for the long-term health of your business.”

And once the formal structure is cleaned up, what about the future? “For example, you may decide that enforced working from home has been successful – that staff are happier and more productive – and choose to make the policy permanent. This may mean a reduction in rent as you reduce office size and make use of cloud technology to drive efficiency.”

Close up – but do it for the right reasons!

“Do not be bullied into liquidation by unscrupulous consultants” says Chris Baskerville.

“In ordinary times, if you act early, often liquidation is not the only option facing a Director, and in my experience, there are other avenues that can be explored before you’re faced with shutting up shop.

“Given the government’s stimulus packages, pressure on landlords about rent and eviction, changes to insolvency regulations and more, it is vital that directors talk to people like us, specialists who are experienced in turnaround and recovery and not just liquidation.”

That said, Chris is realistic. Many businesses will not survive. Chris continues “the emergency measures in place are unlikely to save a business that was failing before Coronavirus COVID-19 impacted the economy”.

“If you have a business that was in freefall before Coronavirus, then it is unlikely that emergency relief will save it, and you shouldn’t expect a government bailout to do so. In this case, work with a professional to undertake an orderly exit while the relief for directors is in place.”

Where to Turn to for Expert Advice?

If your business needs professional advice to get you through the next few months, Insolve.com.au has a panel of experienced business advisors and insolvency specialists with a track record of helping business people face challenges and go on to future success. Contact us to learn more.

DISCLAIMER: All content published on this site constitutes general information only and does not take into consideration your personal circumstances. We have used best endeavours to make it as accurate as possible at the time of publication, but be aware information can change rapidly. You should speak to one of our panel members to understand how this information might relate to you.

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Insolserve Pty Ltd, PO Box 2, Grange, QLD 4051 ABN 97 623 054 679

Privacy Policy | Terms & Conditions

DISCLAIMER: All content published on this site constitutes general information only and does not take into consideration your personal circumstances. We have used best endeavours to make it as accurate as possible at the time of publication, but be aware information can change rapidly. You should speak to one of our panel members to understand how this information might relate to you.

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Insolserve Pty Ltd, PO Box 2, Grange, QLD 4051 ABN 97 623 054 679

Privacy Policy | Terms & Conditions

DISCLAIMER: All content published on this site constitutes general information only and does not take into consideration your personal circumstances. We have used best endeavours to make it as accurate as possible at the time of publication, but be aware information can change rapidly. You should speak to one of our panel members to understand how this information might relate to you.

James Flaherty

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