What is the impact of the COVID-19 pandemic on your organisation’s financial situation?
The COVID-19 pandemic has had an immediate, material impact on the liquidity position of many organisations, potentially jeopardising their ability to continue as a going concern. As it stands, the effects are different for every business and organisation. We have defined three phases that apply in these times of crisis: react, resilience and realise. The three-phase model will help you gain a clear understanding of your potential challenges and business priorities, such as of your supply chain, your human capital or the impact of the crisis on your financial position. We will elaborate on the three phases below.

In the first critical phase, you want to get an instant grasp of your organisation’s liquidity position, after which, in the second phase, you want to review your business processes to ensure that your organisation is able to continue as a going concern while changes are happening. In the final phase, you want to focus on implementing the key lessons you have learned in the two previous phases. 

REACT: an instant grasp of your liquidity position

If your organisation’s ability to continue as a going concern is threatened, you need to be able to think on your feet. Your main goal at that particular time is to sort out your financial situation. How do you make sure, in a crisis situation such as the COVID-19 pandemic, that you know all the ins and outs of your liquidity position at all times, so that you can improve it or prevent your business from failing? 

First of all, you should find out whether you qualify for the support package the Dutch government offers COVID-19-afflicted organisations, such as working capital loans , which allow you to apply for a deferral of payments. Please remember that much of this support is temporary in nature, which is why you also need to consider the long term. Your organisation’s financial performance may deteriorate later on. Any decline in demand will affect your cash flows almost instantly; if your debtors are in financial trouble and cannot pay their bills, your available financial resources will drop even faster. This will cause your DSO to increase and the costs of keeping critical business processes up and running will rise. In these types of circumstances, you need to have a thorough understanding of your liquidity position, so that you can act quickly . 

The COVID-19 pandemic also has tax implications. If your revenue has dropped or you are forced to recognise additional impairment losses, you can ask to submit a new provisional tax assessment for 2020. The tax authorities will raise a new tax assessment within the span of a few weeks. If the assessment is reduced, your future remittances will be lowered or you will qualify for a full (or partial) early refund of previous tax remittances. The reduction may be granted for both personal income tax (if you are self-employed or run a general partnership) and corporate income tax (if your business is a private limited liability company).

RESILIENCE: flexibility to make adjustments based on financial data 

After you have gained an understanding of your liquidity position, you will need to rethink your financial and tax strategies so that you can continue your operations.  Being agile allows you to adapt to changing economic and business conditions. You will want to be able to harness new opportunities and assess risks properly based on scenarios that tie in with the changing world, i.e. the ‘new normal’, and that can realistically be transposed into strategic financial options when the situation arises. This will allow you to make quick decisions based on up-to-date information. If you have 24/7 knowledge of your financial situation, you can make instant adjustments where needed. We offer BDO Analytics, which lets you make more in-depth analyses. The dashboard gives you a daily update on your assets and liabilities, and allows you to thoroughly analyse your earnings . This new angle of looking at your figures offers you new perspectives and options, which will serve as a guideline in the next phase. There is a possibility that these new perspectives make the future look less bright for your organisation, forcing you to consider options such as closing down, a merger or selling business units. But the crisis may also present opportunities, such as the option to buy a competitor or consolidate your position. Please feel free to contact our experienced M&A consultants for more information or support. They would be happy to answer any questions you may have about buying or selling a business. 

REALISE: greater resilience

In the third phase, the focus is on implementing the most important lessons learned from the previous two phases. This is the time to turn things around and start working on your organisation’s recovery. You will want to keep a close eye on your key figures and other information, so that you can stay on track with the KPIs that will help you achieve your targets.

You will also want to take a tentative look at how you can start to bring about new growth using a future-proof plan and map out the implications of your strategic choices. In this context, you may have to consider tax or legal planning or restructuring. You may need loans to achieve growth. What financing solutions are available to fund your growth as effectively as possible, especially if your business is going through a rough patch? A solid plan for the future that includes different scenarios will help you overcome challenges and seize opportunities so that your organisation will be more resilient in the future. 

More information

BDO can offer full-scope support by assigning you a multidisciplinary team of tax and finance specialists. Please feel free to contact one of our specialists if you want to find out more or need help resolving an urgent or emerging issue relating to the government support package or if you are looking to gain a better understanding of your liquidity position.
You are always welcome to get in touch with your BDO contact person if you want to learn more about the impact of the crisis on your organisation or get a better grasp of your situation.