Three Things Your Business Must Do to Reduce Impact of Coronavirus

TheSolvers members John Morgan and Chris Baskerville explain 3 things you must do to reduce the impact of Coronavirus
Coronavirus COVID-19 Impact on business as well as health

And what is Force Majeure and is it
as painful as it sounds?

Business in the accommodation, hospitality, transport, logistics and education sectors, along with those dependent on exports and imports to and from China, are starting to feel the economic impacts of Coronavirus.  According to Insolve Panel members Chris Baskerville and John Morgan, there are three things that businesses must do immediately to stand the best chance of survival.

  1. Have a Conversation

Quoting the immortal words of the great Winston Churchill, Chris Baskerville says action is vital, “One ought never to turn one’s back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half.”

According to Chris, the first thing that business owners need to do is have a conversation. “If you are facing a major issue or think one is approaching, then you need to get on the front foot and start talking to your clients, suppliers, creditors and debtors. In many instances, you can act early and agree on strategies to minimise the impacts of a downturn.”

“But if you leave it too late, and allow pressure to build, having a conversation can be next to impossible and not usually well-received. So, get on the phone, talk through the situation and put forward realistic plans to address the issue. Ignoring it will not make it go away.”

“It is even possible to have a discussion with banks and the ATO about debt and to reach agreements to take the pressure off meeting payments, but you have to have that conversation before the issue gets out of hand,” said Chris.

John Morgan agreed, adding “Business owners don’t understand that you can have a conversation with the ATO about tax debt and reach an agreement – that means you don’t have to close your doors. You can also work with advisors to reassess and refinance your tax debt and other loans.”

“Both strategies work and can help businesses survive. But doing nothing and ignoring the problem will not make it go away. Burying your head in the sand will not take away the sleepless nights and will only multiply the problems that may be coming down the line,” said John.

  1. Diversify Supply and Customer Base

According to Chris “One of the mistakes a business makes is being too wrapped up in one market, too reliant on one customer or dependent upon a single supplier. When things go wrong, it can be devastating.”

A lack of options in a supply chain will impact businesses says Chris, “Many businesses will operate with a single supplier because it provides an economy of scale and is easier than dealing with multiple companies. That’s great as long as supply is guaranteed but is disastrous when a supplier cannot meet their obligations, and you don’t have a product to sell or access to resources and materials.”

“It is important to look at your supply chain, to think about splitting sourcing to local and overseas markets and eliminating risk from your business. It may cost a little bit more, but it will be a smarter approach in the long run,” said Chris.

In a 1959 speech, John F. Kennedy famously said: “When written in Chinese, the word ‘crisis’ is composed of two characters—one represents danger, and one represents opportunity.” Although not an entirely accurate translation, John Morgan wholeheartedly agrees with the sentiment. “If businesses are smart, they will look at growing their business in uncertain times, because there are opportunities out there.” 

“For example, there will be money thrown at tourism campaigns by state and federal governments, with Queensland government announcing a $27 million plan [1] to kickstart tourism from New South Wales and Victoria.”

“If I am in the tourist sector, I should start to align my marketing to take advantage of the increased activity and the fact that many Aussie families will holiday at home this Easter rather than heading overseas.”

“However, businesses need to be strategic about how they grow, and I’d recommend working with advisors who can help you to quickly build a strategy and deliver the tactics needed to get to where you want to go,” said John.

  1. Understand the Law and Your Contracts

Chris says “When businesses are under stress, the default position many adopt is to try and get out of a contract. Business owners must understand the contract terms and what is and is not appropriate so that they can protect themselves.”

A recent report in The Economist [2], showed some Chinese firms using obscure legal clauses to try to avoid contractual penalties, including elements such as ‘force majeure’. According to the article, ‘force majeure’ is not recognised in all legal systems, (in civil-law systems like that of China it can be). The article outlines that it is not a standard part of common-law, like the English and Australian systems but can be considered if a clause exists in the contract.

Solicitor Dean Alexander believes the trend could turn into a legal pandemic. “We are hearing a lot of business attempting to use terms such as ‘force majeure’, which has opinion divided as to whether it can be claimed, with ‘contract frustration’ being a more accurate legal provision.”

“A ‘force majeure’ or act of God, is a contract clause that relieves parties from performing their contractual obligations when events beyond their control arise. In simple terms, a ‘force majeure’ would be a tornado that destroys a factory so that a product cannot be produced.”

 “In Australia, we might say that business may have a ‘frustrated contract’, one that following agreement and without fault of either party cannot be performed due to unforeseen events. In the case of Coronavirus, an example would be if a workforce in a factory is unable to attend work because of quarantine, and as a result, the contract cannot be fulfilled.”

“Therefore, it is critical that company directors know and understand their contract terms and the legal jurisdiction in which the contract will be applied. To do that they should obtain legal advice to fully understand the options that they and their suppliers or customers have, “said Dean.

As panic spreads about Coronavirus, company directors and businesses with cool heads and smart advice will prevail. If the business does need to close, this needs to be done in an orderly and legal fashion. Insolve’s panel supports business experiencing trading difficulties and can advise on legal, debt, and suggest financial and diversification strategies to help mitigate the impact of a downturn associated with Coronavirus.

[1] https://www.brisbanetimes.com.au/politics/queensland/coronavirus-tourism-rescue-package-as-queenslanders-remain-in-quarantine-20200218-p541tf.html

[2] https://www.economist.com/business/2020/02/20/chinese-firms-use-obscure-legal-tactics-to-stem-virus-losses

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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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