After lockdown eases, will the economy face ‘revenge spenders’ or ‘tentative consumers’? Either way, warns Andrew Webb, ‘business as usual’ is going to look very different and businesses will need to adapt hard and fast. As lockdown restrictions begin to ease across the island of Ireland, it is natural that we start to think about the shape of the economy into which we are emerging. Will the various measures taken to protect jobs and businesses succeed in cocooning the economy from a sharp and protracted downturn, or are we facing into a long decline? The hope as we entered lockdown was that the economy would go into a deep freeze and then would pick straight back up from where it left off after the thaw. This is the much hoped for V shape decline and immediate bounce back. While that remains the hope, there is a growing body of emerging data to suggest that some lasting damage is being inflicted, and a longer recovery might be more likely. Astounding decreases in employment and vacancies, coupled with reduced consumer and business confidence, is leading economists to think about whether the path over the next couple of years is a U-shape, where output wallows in a trough before climbing back to pre-pandemic trends. While not an ideal scenario, it would be a much better outcome than the feared L-shape which sees output declining and remaining permanently below where it would have otherwise been. Regardless of the path the economy takes, the pandemic and subsequent lockdown have prompted consumers and businesses to make dramatic changes in behaviours and practices. Consumer behaviour will now go one of two ways – ‘revenge spend’ for all the leisure and socialising that we missed would be a considerable economic boost, whereas the opposing ‘tentative consumer’, fearful about job security, will likely save more, thus reducing demand and prolong the recovery. For businesses, there is much to consider. That dangerous phrase which can hold new and better processes back – ‘we’ve always done it this way’ – can surely never be uttered again without robust challenge. We recently had to try new things at a pace, and we pushed our technology hard. In most cases, it held up and should now embed into ‘business as usual’. At a more macro level, business (and indeed country) resilience and contingency planning will come to the fore like never before, and I would expect this will lead to fundamental shifts. There is increasing talk of the end of globalisation as firms that were reliant on suppliers from thousands of kilometres away faced massive disruption, and countries without key capabilities in certain manufacturing sectors experienced difficulty in obtaining PPE, ventilators and testing capability. A quickening of the pace on automation across the economy is likely to follow, building in efficiency gains and more resilience to any future lockdowns.    Of course, it isn’t just consumers and businesses that drive the economy. The Government’s role, particularly around providing job/income support, has come into particularly sharp focus. How we pay for the large public spending increases will come to the fore in due course. Given the austerity and public sector cuts that remain in our collective memories, I sense no appetite that an austerity agenda will fly again. That’s a discussion for another time. For now, the consensus view accepts that the economic and social cost of mass unemployment far outweighs the financial cost of supporting people to remain in work and supporting businesses remain viable. Andrew Webb is the Chief Economist at Grant Thornton NI.

How can SMEs prepare for the severe economic shock that is going to hit? Ger Foley outlines how businesses can adapt and continue in a different way. I will not pretend to be an advisor who has all the answers for business owners on this. I absolutely don't. However, as a business owner myself, I can relate to all the uncertainty that business owners are facing. Short-term actions Things are clearer when viewed in front of you – on a spreadsheet or even just on paper – it doesn't matter what you use, but it is essential for business owners to make the financial state of their business visible. This will help with the decision-making process and will continue to be critical in the future. You should approach this by: Determining the cash reserves of the business. Finding out how much is owed to you from customers, and what exposure you have to debtors that are unable to pay in the short-term. Finding out the sales pipeline or order book for the short-term (three to six months). Risk profile this pipeline based on the customer, their industry and how their business might be impacted. Determining what the profit margin will be on certain sales. Finding out the current fixed weekly/monthly costs of the business – rent, lighting and heating, insurance, etc. Ignore wages/loan repayments for now. Establishing your payroll cost on a weekly/monthly basis. Determining business loan repayments on a weekly/monthly basis. You are now armed with data to allow you to make decisions. It may be possible to defer or get some extension from suppliers concerning the fixed costs mentioned. The banks will help, although this situation is evolving clarity is needed on exactly what this help will look like. Contact your bank and tell them you are trying to understand your position and will need support. Request a holiday or some other short-term reprieve from your loan repayments. Have a very transparent and open conversation with your team regarding payroll. Allow them to look at the numbers and ask for suggestions or input to the discussion. Longer-term actions We are in for a severe economic shock in the short-term. We are all in the same boat. All we can do in the immediate term is to survive but, more importantly, help each other and our communities. Business owners need to have practical positivity and approach the next chapter with the same level of enthusiasm they had when they started their business. Businesses have been built to where they were pre-COVID-19 so they can be built again. Will they look the same? Possibly not, but the SME sector is excellent at being agile. There are certain approaches that can be followed by the business community: Show leadership as business owners in following HSE advice and return to work protocols. Support their local economy where possible by using local products and services. Local businesses able to operate also need to support the community, e.g. ease of access, quality of service, coming up with innovative ways of ensuring the community has access to the products and services they want. How do you make your product or service relevant in these new circumstances? Businesses that remain strong have a responsibility not to take advantage at this time. They need to pay suppliers quicker than they have previously. Local and national government need to continue to help business owners with whatever supports are needed. We need a period where SME owners can focus on reinventing and adapting their business without the immediate pressure of cash flow and liquidity concerns. Over the coming weeks, as we understand more about what the medium-term future environment will look like, all business owners are going to have to consider their business models and how they can adapt to a new environment. Ger Foley is a Partner at Comerford Foley.

The hospitality sector has been hit hard by the COVID-19 pandemic. Adrian Crean explains how, with innovation and forward-planning, this sector can overcome the challenges it faces. As a well-known boxer once said, “Everyone has a plan until they get punched in the face”. March’s lockdown announcement saw the hospitality and food service sectors decimated, a sector that employs 260,000 people, over 10% of total employment, and significantly supports regional employment. According to the CSO, 70% of these businesses ceased trading temporarily or permanently. Protecting staff, minimising ‘cash burn’ and managing liquidity became the immediate priorities. Even with the phased re-emergence from lockdown, it’s clear that things will be much different to before. The health crisis has become an economic crisis, and many businesses will not see a return to their 2019 levels until 2022, at earliest. Others will not return at all. Businesses are having to think, plan, adapt and act fast. The impact of COVID-19 Higher unemployment, less disposable income, reducing consumer confidence and much lower overseas tourism numbers will have a significant impact on the hospitality and food service sectors in the months ahead. If our own domestic travel restrictions could be safely lifted during June rather than July, it could provide a meaningful and much needed domestic tourist season. As it stands, however, significant planning and investment is being invested to give customers and staff the reassurance needed that the sector will be employing the highest operating standards in a safe, hygienic and welcoming environment – even if it comes at a cost. For example, the implications of social distancing on businesses are enormous. Michelin starred chef, JP McMahon, recently highlighted that at his Aniar restaurant in Galway, setting a two-metre distancing rule in the restaurant will see capacity reduced by approximately two-thirds. Even a one-metre distance will see capacity reduced by one-third. Social distancing in restaurant kitchens and back of house will result in simpler menus and reduced staff numbers. These SMEs will have accumulated four months of debts without any trade and face many more months at subdued levels. Businesses will not be financially viable without burden-sharing on fixed costs, especially rent and rates. Landlords, local authorities, government, and business will all need to participate. Innovating In times of great crisis, we also see great innovation. Customers will need to see a renewed emphasis on value for money. People will be more careful where and how they spend their discretionary income. All businesses should be considering three tiers to their offer – value, mid-tier and premium. The adoption of click ‘n’ collect, curbside collection, grocery and delivery are great examples of channels that hospitality and food service businesses have opened to allow them to reach their customers, but partnering with delivery aggregators is expensive. Charges typically range between 20% and 30% of sales value. This might be manageable of it’s 10% of your business but not at 50% of it, as businesses are now facing. Home working is here to stay. With office capacities reduced by 30% to 40%, expect businesses to rethink their location strategies. This will benefit more suburban and regional locations. Also expect to see leases with rents pegged to turnover becoming the norm. They are a far more equitable solution. Lastly, businesses must invest in their brands. Authentic and memorable storytelling that excites and engages their customers communicated across the right platforms has never been as important. As CS Lewis said, “You can’t go back and change the beginning but you can start where you are and change the ending.” Adrian Crean is a non-executive director with LEON Ireland.

How can charities, especially smaller ones, deal with the many challenges they are currently facing? Kathya Rouse identifies key areas where accountants may be needed to help charity clients. Like everyone else, charities are struggling to come to terms with their new normal. The unprecedented situation we find ourselves in, and uncertainty around the short-term outlook, makes planning for the future exceptionally difficult. Some charities are continuing to provide ongoing services, while other charities are operating limited or no services due to the current government restrictions. It seems likely that some level of social distancing will be in place for some time and many charities will need to come up with new ways to continue/recommence providing their services while adhering to the relevant government restrictions. Amid all this uncertainty, how can we, as accountants, help? Many smaller charities do not have the expertise among staff or trustees to deal with many of the challenges they are being faced with. We are more than “just” accountants to these clients – we are their trusted business advisors who can be relied on to provide independent advice. I have identified a few areas where you may be needed to help your charity clients: Provide a sounding board and listen to their concerns Despite many similarities between charities, each one will have different requirements right now, so aim to provide a bespoke solution for each charity.   Encourage them to develop a contingency plan to guide them through planning for their organisation during the life cycle of the current pandemic There are various free templates and guidance issued by some of the main charity sector support organisations, such as The Wheel and The Carmichael Centre, which you can direct clients to. The contingency plan should be a live document which remains under regular review. Advise charities around their governance requirements and their AGM There is conflicting advice around whether AGMs can be held entirely virtually under company law except where specifically allowed by the company’s constitution. You can play a key role in helping the charity figure out its position re quorum and use of proxies to overcome this hurdle. Get involved in the budgeting process Budgeting has never been more important, and you can provide your expertise through assisting in, or reviewing, the budgeting process. Like the contingency plan, the budget should also be a live document updated regularly. Empower the trustees Empower the charity trustees to make decisions around whether they can use their current accumulated reserves to make up for a temporary deficiency in resources by assisting them to ascertain their restricted and unrestricted funds. Stay up-to-date Ensure you stay on top of the various funding streams available to charities, such as the Temporary Wage Subsidy Scheme and the new €40 million COVID-19 support fund, and make sure to keep your clients abreast of any available funding. Keep up to date with ongoing regulatory, professional and other guidance which may be of use to your clients. Chartered Accountants Ireland have collated a list of various guidance documents which are available on its website and is open to everyone, not just members. Make use of any reputable free resources available to you and your clients. Kathya Rouse is a Partner at McMoreland Duffy Rouse and a CA Support Board member.

In these uniquely challenging circumstances, how can accountants support non-profits? Patricia Quinn and Paula Nyland tell us that thoughtful and clear-eyed planning is needed to mitigate the challenges facing these organisations. Stories from the non-profit sector can paint a bleak picture of services threatened, vulnerable people at risk, fundraising decimated, and mature non-profit businesses facing unprecedented challenges to their viability. The emergency €40 million funding package provided by Government for the non-profit sector will go a ways towards buying some much-needed time, allowing these non-commercial businesses to take stock, regroup and renew their operations. If you look at the thousands of non-profits listed on Benefacts public website, you can see that the sector is highly diverse. At one end, there are heavily staffed health and social care service providers that derive most of their funding from the State in exchange for providing essential services. At the other end, there are thousands of small, local associations and clubs that rely mostly on donations and volunteer effort. These are uniquely challenging circumstances for non-profits and accountants have an important role to play in supporting them – whether as professional advisors or as voluntary Board members. As analysts of sector data, these are the kinds of situations Benefacts has encountered: Dependency on fundraising and donations is high, with almost €0.9 billion reported in the most recent financial statements of all the companies in Benefacts Database of Irish Non-profits. The pandemic has decimated traditional interactive fundraising in its many forms – whether event-driven, church gate collections or calling to homes to sign up to direct debits. Some high-profile campaigns have mitigated this, such as Pieta House, which raised €2 million after a push on social media, but this is only a third of the €6 million raised by last year’s ‘Darkness Into Light’ walk, with no alternative project to fill the €4 million gap. Online fundraising simply does not have the same impact. Many non-profits do not hold an adequate level of reserves. A good rule of thumb accepted by some Government funders is 10 weeks of operational expenditure. Sadly, few non-profits enjoy this level of security. In fact, many Government funders actively discourage the holding of reserves, with the result that several non-profits operate a ‘hand-to-mouth’ existence in terms of cash. Although the cost base of larger non-profits reflects the labour-intensive nature of their work, Benefacts analysis shows that in the case of many smaller non-profits (i.e. less than €250,000), non-payroll expenditure amounts to some 70% of their cost base. This means the COVID-19 subsidy will be of limited value. The demand for services is higher, and the costs of delivery will increase with the cost of delivering care with social distancing restrictions still active. This will have far-reaching effects in homelessness services, respite, residential care, and many more service areas dominated by non-profits. In the voluntary housing sector, income support payments have helped maintain rent payments but, without a further injection of funding, it will become harder to meet the demand for housing given the likely consequences for the coming recession for the building sector. Inevitably, the current focus is on the immediate issues, but for the medium-term, thoughtful and clear-eyed planning will be needed. Directors and trustees need to be looking at cash flow projections, potential increases in demand, and commitments to continued government support. Without this, sector leaders are telling us that tough decisions may be needed to cut services as early as Q3 2020. Although the emergency fund is very welcome, many organisations will need an early commitment of future government funding into 2021 and beyond to maintain essential services. The alternative could be closures, with all the unthinkable consequences for the most vulnerable in our society.   Patricia Quinn is the Managing Director of Benefacts. Paula Nyland is the Head of Finance at Benefacts.

How can charity trustees continue to safeguard charities during this tumultuous period? Michael Wickham Moriarty gives us three top tips on how to safely guide your charity through these uncertain times. The COVID-19 crisis has now been impacting Irish charities for at least two months. What should charity trustees be doing for their charities now and for the future? Keep meeting, but be flexible Board and committee meeting schedules may have been disrupted, or even paused, during the introduction of restrictions in March and April. This is entirely reasonably as management focused on facilitating remote working and core business continuity during the initial stages of the crisis. If meetings have been on hold, look to restart them now. All the governance functions of charity trustees are just as important during this crisis as they are during normal times. Undoubtedly, the agendas and board calendars will need to shift to focus on business continuity, crisis management and other COVID-19 related risks. All meetings should be remote rather than in-person. They may take place at different times to facilitate either board or management. Some meetings for board and committees may be called at short notice as the charity responds to a rapidly changing situation. The papers prepared by management may be less polished and punctual as the executive team focuses on crisis response. Going forward, charity trustees should continue to meet and focus on their core governance roles of strategic direction, oversight and risk management. Think of all stakeholders Given the serious impact of COVID-19, management may focus their energies and attention on specific stakeholders or critical areas. Charity trustees should ensure that all stakeholders are considered during the crisis. For example, the management team may be focused on serving and protecting their vulnerable beneficiaries without giving sufficient attention to staff welfare, including their own. In many charities, the funding and financial crises could take all the attention away from the critical work of the organisation. Institutional donors are a stakeholder that can dominate the attention of charities, but many of these funders are currently being flexible with their grants, allowing charities to focus on other stakeholders. Trustees should ensure due consideration is given to the needs of all stakeholders, as well as organisational sustainability. Be a critical friend to management Most charities are dealing with multiple complex risks with a high-level of uncertainty over the future operating context for funding, staff and beneficiaries. This level of uncertainty is likely to persist for the remainder of this year and beyond. Charity trustees must always balance their relationship with management between challenge and support. As a trustee, you may have access to networks, expertise and experience not available elsewhere within the charity. Use this information to test the assumptions that management use for their COVID-19 response plans. Examine the scenarios and decision points set out. This trustee perspective can really add value as you collaborate with management in agreeing how to chart your charity’s path through these unprecedented times. Good luck! Michael Wickham Moriarty FCA is a Governor and Vice-President of the Rotunda Hospital, and he is the Director of Corporate Services of Trócaire.