By Victor Kroeger
The COVID-19 pandemic and ongoing economic shutdown have dealt a devastating blow to the real estate and construction sector. Millions of people are out of work or have lost income and thousands of business have had to temporarily shutter. Many of these tenants will require temporary rent deferrals or reductions. There has also been a significant slowdown on property sales — as well as lingering questions around whether builders should keep construction crews working and the costs of suspending projects.
The knock-on effects for agents, landlords, and developers have been sudden. And without a clear timeline for when or how the crisis will end, businesses that have never experienced financial difficulties before are suddenly facing all sorts of new and frightening questions:
- How do we stay in business and service our debt?
- How will I finance the completion of any construction projects?
- Will my lenders still work with me?
- Will I still have customers and tenants when this crisis is over?
- Will my key employees return?
- Will my contractors still be in business?
The social, economic, political, and personal hardships resulting from COVID-19 are unprecedented in our lifetime. But what can you do about it?
Face each problem head on
The global situation is dire, but there likely isn’t a lot you can do to change it. Instead, look to the immediate challenges your business is facing and solutions you can implement right now to address them.
Anticipate your cashflow
Cashflow forecasting is always important, but it’s paramount when times are tough. Three-way budgets that tie in income statement forecasts with cash flow and balance sheet forecasts are the best, as this allows for scenario (what if) analysis.
Forecasting is always difficult — especially with question marks around when the pandemic will end and when business operations reopen. You simply need to use the best available and supportable information.
Open the lines of communication
Your lenders, customers/tenants, and major suppliers/contractors need to know how the company is responding to the current situation. Be proactive and advise them of any issues and your plans to address them.
Everyone will not always agree with your strategies and actions. But they will appreciate learning about them up front much more than they will as an unpleasant surprise later on.
Put all your cards on the table
You need to know what your options are to deal with any financial difficulties your company is experiencing. The earlier you can bring these options forward the more potential solutions may be available.
How’s your corporate financial heath?
The following checklist can help you understand where your business currently stands — and what you can do to improve your resilience during this difficult time.
Warning signs
- Business is shut down
- Tenants are shut down and/or stopped paying rents
- Suppliers/contractors are shut down
- Employee source deduction and GST remittances have not been paid, are outstanding and in arrears
- Insurance coverage has lapsed
- Cash is depleted
- Project financing, lines of credit, and investors’ financing are maxed out
- Broken borrowing covenants
- Lenders have sent demand letters
- Insufficient cash available to satisfy debt repayments which are coming due
- Suppliers/contractors are commencing actions, including registering liens on projects
- Going concern notes in financial statements
What to do
- Prepare a detailed and supportable three-way cashflow forecast
- Prepare various contingency plans
- Discuss your options and forecast with your lenders and investors
- Discuss your options with a Licensed Insolvency Trustee
- Discuss your options with an insolvency lawyer
- Take security for any advances made to a company
What to avoid
- Inaction
- Waiting for creditor action before considering your options
- Putting more money into the business without a detailed and comprehensive strategic plan that reveals an opportunity to recover such advances
- Foregoing sound business decisions
MNP is here to help
MNP LTD has Chartered Insolvency and Restructuring Professionals across the country who specialise in corporate recovery and restructuring. They are available to consult with companies about the available options to address financial difficulties and to assist in preparing forecasts. For more information, a full list of regional contacts is available at MNPDebt.ca.
To learn more about how MNP LTD can help, contact Victor Kroeger CIRP, LIT, CPA, CA, CFE, Director of Corporate Recovery, MNP LTD at (403) 298-8479 or vic.kroeger@mnp.ca.
