The Impact and Irish Business Services Response to COVID19
The World Health Organisation declared pandemic March 11th, 2020 causing untold impact on the lives of people, families and communities ultimately affecting all levels of society. Since this point, only 7 weeks later, the fallout of the global measures to combat the outbreak have had an unforeseeable and incredibility sobering impact on the Irish economy. As of 21st April, the Minister for Finance, Paschal Donohoe has said that Irish GDP is set to fall by 10.5% this year with the labour market going to a peak unemployment rate of 22% in the second quarter, before averaging out at 13.9% for the year. At this level of modelling approximately 220,000 jobs will be lost. Only 6 weeks prior to that to counterbalance, in early March, CSO data revealed that Ireland had the fastest growing economy in the European Union in 2019 with growth of 5.5%. At the beginning of March, the Department of Finance had projected that there would be further growth of 3.9% in 2020. The economy began 2020 strongly, evidenced in the AIB PMI Services index, with overall business activity reaching a two-year high of 59.9 in only February 2020. The outbreak however drove down that index figure like a lead balloon in March to 32.5 - the third-lowest level since records begin. Being an optimist pre-COVID19, macro indicators and an environment to enable business to prosper and flourish was present.
While the effects have been direct and immediately evident for businesses operating in sectors such the hospitality, retail, construction, childcare as a result of businesses having to close, there will be a latent impact on services businesses due to downstream risk to their clients and indirect exposure to high impact sectors. From discussion with business services firms, the impact on cashflow is becoming more evident as the weeks pass. Some business service firms advise as a result of reduced revenue or workloads drying up, they are taking extremely difficult steps but necessary ones to manage cost with some implementing wage cuts and lay-offs, negotiating short term rent reductions with landlords and keeping variable costs to a minimum. Conversely, some service businesses, through remote working continue to be busy providing advice, completing pre-covid work in progress outstanding and engaging constantly with clients. The concern for all businesses is whether their own clients will have the ability to pay for work undertaken and at the same time businesses continue to have wage bills and fixed costs which must be paid and managed.
COVID19 is sector agnostic and all businesses are facing significant challenges to some extent which requires a rapid response. There are steps SMEs and family businesses can take to better position the business for current or potential financial impact to come. Early engagement, talking with your bank is an essential part of any action plan. When businesses affected are engaging with their bank, the most important information a customer can give the bank is an understanding of its opening liquidity position and what cash outflows it expects to make in the coming weeks and months. Know what cash your business generated last year and be able to assess the financial impact the current difficulties will have. Know to what extent COVID19 has created revenue volatility, increased input cost of sales and has impacted certain revenue lines. What are the pressures with staffing, have redundancies been needed or in fact is their staff shortages? Has the business engaged its creditors and can existing credit terms be extended, can existing payments be deferred? Suppliers and rent (excluding wages) are likely to be the largest creditors. Has the business estimated the impact of a delay in the cash cycle and what impact having to extend credit terms will have on the business. Has the business experienced any supply chain issues and is there alternative suppliers to source materials from if required? Ensure the business has accessed the financial options and financial supports available to it.
The challenges, SMEs and family businesses are facing are unprecedented and managing the months ahead will be very difficult. AIB has a range of solutions to support our customers who are experiencing financial difficulty as a result of COVID-19 including business loan repayment breaks, additional working capital facilities, business credit card payment break options. If you are trading oversees AIB Treasury has support solutions available. AIB Prompt Pay & Insurance Premium Finance are short term solutions to assist cashflow by turning large annual bills into manageable monthly repayments. AIB also partner with Government bodies to bring State supports to our business customers such as the SBCI Covid-19 Working Capital Loan Scheme and Credit Guarantee Scheme.
For further information on AIB’s full range of supports for Business during Covid-19 please refer to https://aib.ie/covid19/business
Authored by Ciaran Foley, AIB Sector Strategist for Business & Professional Services