17th July 2020Back To News
If you have already made the non-exec seat at the boardroom table, you have probably already weathered a few crises in your time, which is great experience and can act as a bench mark and model against future challenges. Yet, no one has been through something quite like COVID-19 before. Suddenly a whole new list of demands has been thrust upon us:
As a successful tech entrepreneur and investor, I have many minority and majority stakes in a number of businesses, most of which are tech related, interspersed with a couple of property businesses. All the companies are at different stages of their life cycle, some sub £1m revenue others sub £10m and others exceeding £50m and £100m. I had what I thought was a good spread of sectors covered off in SaaS, IT, Apps etc… spreading the risk across tech businesses that supply services to most, if not all parts, of the economy. A well-structured, strategic portfolio… or so I thought.
One common theme we always talk about is how cash is the life blood of any business. “Cash is King” we use to say, but over the last few weeks, we’ve since established that cash is actually God. From small to large businesses, problems with cash flow can cause immense stress for owners and employees alike. I saw a shocking article this morning which said “9 out of 10 companies are still waiting to be paid for work performed before the virus hit the economy in March” and that this lost cash flow may undermine efforts to rehire employees. Right now, as our country braces itself for continued economic uncertainty, every pound in the till, the bank account and back pocket of our business counts.
From what I have seen, every business has had its own unique set of challenges, whether that be sudden illness on a large scale, critical suppliers suddenly closing, the pressures of staff juggling remote working and home schooling, or the general capabilities and restrictions of working from home, the list goes on and on….
At the start of the crisis, I had various Teams calls with some of the big four accounting firms. Their initial views on my investments were promising. Highlighting the fact I’ve invested across sectors and companies that are vital suppliers, they were confident that businesses would continue paying their bills just to keep their lights on. Whilst this has turned out to be the case so far, this is unfortunately in sharp contrast to other businesses who aren’t currently being paid for work carried out or services delivered. We, in turn, rely on these businesses to pay us and keep the cash flowing.
My concern for many businesses is this; if their customers suddenly can’t pay because they either haven’t been paid themselves or have to borrow first to pay their bills, how can they then pay the businesses they owe? It’s a vicious circle that’s simply unsustainable. How long can this continue before we see a domino effect across the economy? In the companies I am involved with, we’ve been running and re-running several cash flow forecasts, P&L forecasts and countless different models etc. factoring in the best-case and worst-case scenarios. It’s like being at a children’s party blindfolded trying to pin the tail on the donkey. There’s more questions than answers…
Perhaps the biggest question of all is what is going to happen when furlough ends? The UK economy will have to somehow bounce back before furlough support ends, otherwise mass redundancies will follow across numerous sectors. That will then have a domino effect on the whole economy. It’s a downward spiral we have to avoid at all costs.
CEOs have realised that by implementing the right technology, people can successfully work from home. There will certainly be a lot less travel in a post-corona world. One of my businesses, Elite Group, has implemented Microsoft Teams across thousands of customers and businesses, who are all now successfully working from home. People are becoming use to face-to-face meetings over Teams, Zoom, Skype etc…. The pace of change is here to stay.
The one positive to take away from this crisis compared to the 2007 and 2008 recession is liquidity. The banks are lending, the government is guaranteeing some borrowing, grants are available to support businesses. The help is there if you are prepared to play the long game and take on some additional risk. As entrepreneurs, life has always been about calculated risk and reward, especially now we are entering uncharted territory.