Some businesses are going to need to “mothball” or “cocoon” until the Government considers the Pandemic to be of lower risk and trading conditions improve.
What is Cocooning?
Cocooning, or mothballing, is a temporary suspension of a business and can be the result of sales reducing to zero (or nearly zero)
All cash outflows where possible are stopped or reduced and the business is left in a state which it can emerge from once the prevailing business conditions improve
We would like to take you through the top four principles of cocooning your Business.
- Prioritise – Focus attention on the biggest cost items and those critical to the future of the business. These are the ones which need attention first and will have the biggest impact (e.g. payroll, rent). Once these are managed attention can be turned to the smaller / less critical costs.
- Communicate – Ensure that relevant stakeholders are being informed of what is going on. Remember to be honest and upfront (even if delivering bad news) as this will help maintain relations with stakeholders.
- Negotiate – These are unprecedented times and every business and person will have been impacted by Covid-19 in some way. This means there are no agreed solutions and the opportunity to negotiate and find novel ways of dealing with problems is likely.
- Think long term – Just as important as how you cocoon the business in the first place is thinking about how you unwind what you do in the future. Simply stopping paying creditors is likely to mean there will be a stack of overdue demands when returning the business to operation in the future. The solution is communicating and trying to find solutions that work for both parties such as incentives, payment in kind etc.
Alan Patient & Co are helping many businesses during this difficult time. For any Business Advice you may need to help you get through COVID-19 please contact us click here