As thousands of people have headed back to work, the manufacturing industry will need to have safety guidelines set out for both customers and employees as the industry is particularly prone to close contact with others.
Here Alastair Wilson, a partner at leading accountancy firm, MHA Tait Walker has some advice for manufacturers in light of the COVID-19 outbreak which has caused major disruption across global markets, with restrictions on human movement disrupting the majority of sectors.
Manufacturers have taken a hit during lockdown. They have been faced with the problem of either a reduced workforce or suddenly been faced with totally absent teams. There has also been a pause to supply chains and an aggressive decline in customer demand.
Despite the Government’s advice for a return to work this week, there have been a number of concerns around both safety and cashflow implications. Both will no doubt remain significant for some time. Fixed costs have already drained cash reserves for many and the uncertainty of the lockdown period has made management decisions on safety very difficult.
What can manufacturers do now?
In terms of cash flow, hopefully by now business owners will have accessed the Government-backed initiatives in order to ascertain what can be used and what impact they may bring.
The deferral of tax balances bring an immediate cashflow saving and the use of the Coronavirus Job Retention Scheme can also yield savings. The Coronavirus Business Interruption Loan Scheme can also be considered for those businesses with proven viability and an historic financial performance that demonstrates the ability to service new debt.
On the safety front, a Covid-19 risk assessment should be carried out in consultation with workers and trade unions. Employers will also need to redesign workspaces to maintain 2m distances between people by staggering start times, creating one-way walkthroughs, changing seating layouts and opening more entrances and exits.
Initial thoughts and decisions will be largely based on an assessment of what options business owners have at their disposal and the ultimate execution of those options.
Business owners should consider the working capital implications of exhausting reserves in the immediate term, with the problem looming as to how you can fund the recommencement of operations in the post-lockdown period.
You should therefore take care of your financial plan. Your eyes should be focused on the security you have pledged to external funders and that which may be sought during any CBILS application. Longer term assessment of overall indebtedness should also feature, with a lot of Government initiatives being debt based, which by their nature will require repayment. This will therefore pose directors some challenge as they balance their wider responsibility to all business stakeholders.
How can you manage the cashflow risks?
A thorough and robust financial plan will be central to your business planning in the coming months. Additionally, the use of your advisers will be key during any negotiations undertaken with your funders. Capital holidays and short-term facility extensions will provide temporary respite, but you should look beyond the initial period of uncertainty and retain some focus on what comes next.
The re-opening of markets will see the re-emergence of demand, but this may not be swift. A gradual build up could be in order for a lot of markets. The risk of customer and supplier failure should also be considered, with contingency plans drawn up.
The demands and pleas for prompt or upfront payment are likely and a natural drift in credit terms may also be imposed by your larger clients. You should therefore assess those impacts and build a cash buffer, with attention required on the covenant suite your funders will have in place. Keeping your books and records up to date will therefore be imperative and allow maximum flexibility as you continue to make strategic decisions.
What else should you consider?
Non-financial considerations will also be vital, as well as the re-introduction of your team in to the workplace. Workforce morale and overall productivity should be monitored closely. Repairs, maintenance and reconnection of idle plant and machinery will also need consideration.
The considerations for business owners are extensive and will move and change due to ongoing problems which may linger due to COVID-19. Cash management will also drive focus and risk monitoring will be an increased priority as we proceed through 2020.
BACK TO SCHOOL – CEOS NEED TO LEARN A NEW LANGUAGE, FAST!
By Simon Axon, Financial Services Industry Consulting practice lead in EMEA, Teradata
Chief Executive Officers of banks know all about change. Leading responses to new challenges, new opportunities, new regulation and new markets is all in a day’s work. But the existential challenge posed by Big Tech requires a totally new set of skills. It is an entirely different beast that inhabits a totally new environment and speaks its own language. CEOs now need to learn the language of data to survive in the emerging digital world.
Learning a new language later in life is hard. CEOs need to fully commit to accomplish it. Becoming data literate means mastering the basics of vocabulary and grammar. Gartner defines data literacy as “the ability to read, write and communicate data in context, including an understanding of data sources and constructs, analytical methods and techniques applied — and the ability to describe the use case, application and resulting value.” Extending the language analogy: the building blocks are an understanding of logical data models – the basic vocabulary; meta data providing rules and information about data is the grammar. Learning needs to go beyond parroting a few key phrases and acronyms. To really communicate in this new language CEOs must not only be data literate – but data cognitive. Language shapes thinking, and to succeed, today’s CEOs need to think data like digital natives.
As anyone who has learned a language will recognise – practise makes perfect. This means rolling up your sleeves and getting into the data ‘lab’. Run some queries, experiment with data to test theories and learn how data can, and should, inform all aspects of business management. It is daunting, and different functions are fiercely protective of their data. But that’s one of the big cultural shifts the CEO needs to lead. Data is more valuable when it is used across the business. Developing safe and secure ways to combine, refine and analyse data at an enterprise level is fundamental to competing with Big Tech. The Chief Data Officer can help. Spend time with them and use them as a teaching-resource to get more familiar with what can and cannot be done with your data.
As you practise you will build confidence and move from school-level conversations to business-class data fluency. Spending more time looking at and working with data and you will begin to recognise ‘quality’ data, identify attributes and flag anomalies. This will build confidence and essential trust in data. Last year KPMG found just 35% of CEOs trusted the data in their organisations. This shocking stat undoubtedly stems from a data skills deficit among CEOs themselves. If they don’t know what to ask for, and can’t recognise what they get, they won’t trust it. To stretch our linguistic analogy, if you are not confident in the language then you’ll be anxious ordering food in a restaurant!
Ultimately, no one expects the CEO to personally implement data-analytics programmes across the business. But unless they have the confidence and the skills to accurately communicate what’s needed, to sit at the head of the table and ask the right questions about the menu, then the organisation is unlikely to put the right emphasis on the data strategy.
In How Google Works, former Google Chairman Eric Schmidt outlines how every meeting revolved around data – it is simply how Big Tech works. Banks need to adopt the same approach. Exploiting data in all scenarios must become second-nature. By modelling the use of data across the business – dissolving silos rather than sticking to narrow data sets that reinforce them, the CEO can define a powerful data culture. Operationalizing data strategy will, just like using language skills, stop data literacy from becoming rusty.
Entering any new market requires investment in understanding the language, culture and business environment. In the Big Tech world, data is the lingua franca informing every decision. Bank CEOs need to learn from them and invest in building their knowledge to become data fluent. There are no short cuts. Throwing money, bodies and tech at the problem will not get you there.
REVITALISING THE TOKEN MARKET
By Gavin Smith, CEO at Panxora
With interest rates near zero and fears that whipsawing stock markets are set for further plunges, many investors are turning to alternative markets in the search for returns. Money flowing into cryptocurrency hedge funds and trusts like Grayscale is at all-time highs and the large cap coins seem to be entering a bull phase, but that capital is not trickling down into new token projects. Why are blockchain token projects struggling to attract funding?
Seed investor scepticism
Setting aside the reputational issues with mainstream investors, even those educated in blockchain tech are not signing on the dotted line. This is certainly due in part to the hangover from the early token market.
During the heady days of 2016/17, investors could buy tokens during the token sale, and if the project was legitimate – even if the business case wasn’t particularly strong – prices would soar based on market enthusiasm. Early investors purchased at a discount and cashed out almost immediately for a handsome profit – and then repeated the process again. The token sale allowed founders to amass a war chest large enough to finance the entire token project – without having to give up a large chunk of company equity. Everyone got what they needed out of the deal.
Running a token sale is far more expensive today than it was during the boom. Getting the attention of the token buying public in a market where advertorial has replaced editorial is expensive. This coupled with a regulatory framework that requires the advice of accountants, solicitors and information gathering of KYC details for investors all comes with an escalating price tag.
To accommodate the change in cost structure, tokens now need to acquire funding in two rounds. Frequently there is a first round where capital is raised from a few, large investors. This cash is then used to finance setup and marketing the main token sale. The token sale, in turn, provides the capital needed to run the entire business project.
Bridging the gap between token projects’ needs and early stage investors
To successfully get a token through the capital raising process, founders must acknowledge the risk assumed by those very early investors and reward them appropriately. And given that tokens may stagnate or fall in price post token sale means that a deep discount in token price is not necessarily attractive enough to get investors to commit.
Many tokens have turned to offering equity in the business in the effort to raise that first tranche of capital. If you look at the number of successfully concluded token sales, the downward trend has continued since Q2 2018, so offering equity is not sufficiently stimulating the market.
Two sides of the coin
So, what is the answer? It’s a complex question but one thing is certain. Any solution must be rooted in a deep understanding of what both parties need to successfully conclude the deal.
On the one hand, token founders’ needs are clear: they need enough capital to get the token ready for and through a successful liquidity event that will provide sufficient funds to build the project. The challenge lies in striking the right balance between accruing that capital and making sure not to offer so much project equity that give up either the control or the incentive founders need to drive the project forward.
On the other hand, while the needs of the seed capital investors are more complex, there are two areas of key concern: transparency and profit incentives.
Transparency can mean many things, but almost always includes providing more informative cost and profit projections, as well as answers to a whole range of questions, not least the following:
- What happens to investor capital if the token sale event fails? Token founders must be transparent from the outset. The token market is highly speculative and early investors run the risk of losing their money should the project fail. Therefore, investors require a well-established fund governance process in place throughout the fundraising so they can make informed decisions on whether the project is worthwhile.
- How are the assets for the entire project managed? Investors need to know that their money is in good hands and that proper treasury management techniques are being used to manage cryptocurrency volatility risk. Ideally, an independent custodian will be used to hold the funds and limit founders’ ability to draw down the capital – releasing funds to an agreed-upon schedule of milestones.
- How are the rights of investors protected, for instance in the case of a trade sale? Investors need to know what happens if the company they are investing in is sold. What impact could this have on the value of their stake? Would a separate governance framework need to be established? These are critical questions and investors aren’t likely to settle for any ambiguity in the answers.
Profit incentives are important when it comes to encouraging early participation in a project. Investors need convincing that the proposition will keep risks to a minimum and focus on providing a strong probability of a return. This means that founders need to be able to defend the case for the increase in the value of their token.
But this isn’t the only incentive that matters. Investors can also be incentivised by preferential offerings such as early access to projects and services that might help their own business.
Let’s not forget that investors don’t support just any project. What really matters is that there is something special and unique about the business being underwritten by the token. Preferably something that could be shared upfront and directly benefit the investor – proof that the investment is really worth it.
And that’s what it all comes down to. Ultimately, while token projects are having a hard time finding funds at the moment, if they can prove their worth and provide full transparency and clear profit incentives to ease investors’ concerns, the money is out there. And deals can be done.
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