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Business Continuity Planning with Specific COVID-19 Measures

As we navigate through these unprecedented times, it is natural to feel a sense of panic as we may never have truly anticipated that the worse case scenario in our cash forecast for 2020, may now be the best case. However, if you are a leader for your business, your charity, your home – you have experience that when change happens you now how to adapt. History has proven that it is not the largest that survive, it is those with the ability to adapt to change who thrive. With accurate information, (in these times information is volatile – tax payment deadline moved to July 31st, to August 31st, to “after” August 31st, now September 1st), coupled with the Canadian COVID-19 Economic Response Plan, there is a path forward to overcome the adversity before us. Let’s map out a Business Continuity Plan together.

To begin, we have summarized certain key support measures provided to businesses, not-for-profits and employees under the Canada COVID-19 Economic Response, to assist with your cashflow needs. Below the summary, Strata-G has provided a checklist to assist in building a business plan that will guide you through the key decisions to be made, and to outline a path forward beyond your liquidity barriers.

We cannot stress enough – Communication is Vital!

  • Wage Subsidy:
    • Canada Emergency Wage Subsidy (CEWS): The Canada Emergency Wage Subsidy would apply at a rate of 75 per cent of the first $58,700 normally earned by employees – representing a benefit of up to $847 per week.
      • The program would be in place for a 12-week period, from March 15 to June 6, 2020.
      • Eligible employers who suffer a drop in gross revenues of at least 30 per cent in March, April or May, when compared to the same month in 2019, would be able to access the subsidy
      • Eligible employers would include employers of all sizes and across all sectors of the economy, with the exception of public sector entities.
      • For non-profit organizations and registered charities similarly affected by a loss of revenue, the government will continue to work with the sector to ensure the definition of revenue is appropriate to their circumstances.
      • An eligible employer’s entitlement to this wage subsidy will be based entirely on the salary or wages actually paid to employees. All employers would be expected to at least make best efforts to top up salaries to 100% of the maximum wages covered.
      • Wage subsidies are considered taxable income to the employer
    • 10% Subsidy: The 10% subsidy will remain, which includes a subsidy of $1,375 per employee, $25,000 per employer. Those that qualify for both, and have applied the 10% subsidy as a reduction to payroll remittances, will see the 75% subsidy offset by the same amount.
      • Proposal is to provide eligible small employers, those that qualify for small business deduction (including non-profit & charities) a temporary wage subsidy for a period of 3 months.
      • The subsidy will be equal to 10% of remuneration paid during that period. Businesses that pay remuneration to an employee, such as salary, wages, or taxable benefits, on or after March 18th and before June 20th, are permitted to reduce remittances of federal, provincial, or territorial income tax by the amount of the subsidy.
      • Where the subsidy is greater than the calculated tax, the difference can be carried to future remittance periods (beyond June 20th, as necessary). Access the Canada Revenue Agency link here.
  • Work-Sharing: Work-Sharing (WS) is an adjustment program designed to help employers and employees avoid layoffs when there is a temporary reduction in the normal level of business activity that is beyond the control of the employer. The measure effectively shares the available salary expense among eligible workers, by reducing the number of days worked per week, with income support through Employment Insurance Benefits. The temporary measures added for COVID-19 include:
      • WS agreements can be signed between March 15, 2020 and March 13, 2021
      • Cooling off period between WS Agreements is waived
      • Duration of WS Agreement can be extended, with max period adjusted from 38 weeks to 76
      • Core employees on EI, can be added to WS agreement
      • Employee Benefits are maintained through WS Agreement, but communication should be provided to employees if Benefits reduced as calculation based on earnings or hours worked
      • WS agreements can be done in Work Units, with minimum of 2 employees for employees with similar job descriptions
      • If business does not recover:
        • Employee can transfer their WS clam to regular benefits
        • Normally, benefit rate and duration of the EI claim is not reduced by WS
  • Canada Emergency Business Account: This program was created to provide businesses with payrolls of less than $1 million, interest free loans of up to $40,000
      • Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25% (up to $10,000)
      • Eligible businesses include small businesses (1-99 paid employees) and not for profits. These businesses will need to provide proof that they paid between $50,000-$1 million in total payroll in 2019
      • These loans are guaranteed and funded by the Government of Canada, and can be accessed by contacting your Canadian financial institution.
  • Business Credit Availability Program (BCAP): will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide more than $10 billion in additional financing, largely targeted to small and medium-sized businesses.
      • Financing can be obtained by contacting your local Canadian financial institution, or BDC & EDC directly.
      • BDC and EDC are cooperating with private sector lenders to provide credit solutions for business, including sectors in oil and gas, air transportation and tourism
          • Co-Lending Program which brings BDC and financial institutions together to co-lend term loans to businesses for cash flow needs. Under the Co-Lending Program, businesses can obtain incremental credit amounts up to $6.25 million, 80% of this amount would be provided by BDC and 20% provided by your businesses financial institution
          • EDC will also provide funding to financial institutions of up to $6.25 million to small and medium sized businesses. EDC is traditionally focused on Export only but are now under a new mandate to assist domestic businesses as well. This loan will be 80% guaranteed by EDC, to be paid within one year.
          • In total, businesses could potentially obtain up to $12.5 million through the two programs
          • Eligible businesses: to be eligible for these programs your business must have been impacted directly or indirectly by COVID19, and must have been financially viable prior to the COVID crisis
          • To access these loans, business owners must speak with their financial institution who will then assess their situation and release the necessary funding.
      • Near term credit available to farmers and the agri-food sector will be increased through Farm Credit Canada
      • Changes to the Canada Account, administered by EDC, to allow the government to provide additional support to Canadian exporters through loans, guarantees, or insurance policies
  • Additional Financial Credit Measures: In addition to BCAP, there are additional financial measures in place that should assist with cash flow and liquidity planning:
      • Office of Superintendent of Financial Institutions (OSFI) is lowering the Domestic Stability Buffer by 1.25% of risk weighted assets, effective immediately. This will allow Canada’s large banks to inject $300 billion of additional lending into the economy
      • The Bank of Canada has cut the interest rate to 0.75% as a proactive measure.
      • Under the Insured Mortgage Purchase Program (IMPP) the government will purchase up to $50 billion of insured mortgage pools. This action will provide long-term stable funding to banks and mortgage lenders, which will help to facilitate continued lending to consumers and businesses
  • Extension of Tax Payment Due Date: The Canada Revenue Agency will allow all businesses to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.
      • In addition, GST-HST payments (including custom and duty payments) may be deferred until June 30
      • While the GST-HST filing deadlines are in place, the CRA has indicated that there will be no late-filing penalties assessed through June 30
  1.  
  • Employment Insurance: for those who are eligible for EI, and for those without paid sick leave, who are sick, quarantined, or forced to stay home to care for children (medical certificates waived):
    • EI provides an employee 55% of their earnings, to a max. of $573/week (Max 45 weeks)
    • One week waiting time waved – after EI application, call 1-833-381-2725
    • If laid off for COVID-19:
      • Reason for Issuing ROE: Code A – Shortage of Work
    • If off work due to sickness or quarantine:
      • Reason for Issuing ROE: Code D – illness or injury
    • No Other comments are needed, will delay application
  • Canada Emergency Response Benefit (CERB): The Canada Emergency Response Benefit provides temporary income support to workers who have stopped working and are without employment or self-employment income for reasons related to COVID-19. The new Canada Emergency Response Benefit is paid in blocks of four weeks in the amount of $2,000, which is equivalent to $500 per week. A maximum 16 weeks of benefits can be paid. The benefit is available from March 15, 2020, to October 3, 2020. You can apply no later than December 2, 2020. 
    • Eligibility: The benefit will be available to workers:
      • Residing in Canada, who are at least 15 years old;
      • Who have stopped working because of COVID-19 and have not voluntarily quit their job;
      • Who had income of at least $5,000 in 2019 or in the 12 months prior to the date of their application; and
      • Who are or expect to be without employment or self-employment income for at least 14 consecutive days in the initial four-week period. For subsequent benefit periods, they expect to have no employment income.
    • EI or CERB? If you have stopped working because of COVID-19, you should apply for the Canada Emergency Response Benefit, whether or not you are eligible for Employment Insurance.
      • The Benefit is available for the period from March 15, 2020 to October 3, 2020.
      • Starting April 6, 2020, there will be a single portal to assist you with the application process.
      • Until then, Canadians who are eligible for Employment Insurance and who have lost their job can continue to apply for Employment Insurance.
      • If you became eligible for EI regular or sickness benefits on March 15, 2020 or later, your claim will be automatically processed through the Canada Emergency Response Benefit.
  • Mortgage deferral payments: On a case-by-case basis, large banks will include up to a 6-month deferral on mortgages, and the opportunity for relief on other credit products
  • Additional Measures:
    • Extension of tax payment deadline until after August 31st, tax return deadline to June 1st.
    • Additional GSTC and Child Tax Benefit payments
    • Reduced minimum withdrawals for Registered Retirement Income Funds
    • Moratorium on the repayment of Canada Student Loans

Focus on We

Your People will always be your greatest People. That sentence may sound odd, but even staring down the most difficult decision, do not view them as merely capital, resources or assets. They are People with fears, bills to pay, uncertainty, potentially sick loved ones, or may be directly impacted by illness. Therefore, the first item on your Business Continuity Plan, is your People. The health and safety of your team is your priority. Focus on WE!

  • Where should your team work?
    • Do you have capabilities to work remotely?
      • Identify what work units that may be able to work from home.
      • Consider tools such as Slack, Skype, Zoom for communication and collaboration for daily and weekly communication
      • Implement VPN or remote offices to ensure data is stored securely and multiple users can access files as needed
      • Virtual time management systems (TSheets, WorkFlow Max as examples) should be considered for job allocation and to measure progress. Consider free trials to keep costs down and to test whether virtual time/job management is a fit.
    • For essential businesses, or businesses that require onsite employees, ensure workplace cleaning protocol is enhanced
      • Increase cleaning of high volume, communal areas, as well as touch points
        • Ensure staff have mechanism for checking health status
      • Implement shifts to ensure appropriate staff are onsite as necessary, while reducing risk of spreading sickness through social distancing.
      • Consider reducing hours to assist with cleaning of facility and to ensure employees have time to rest and take care of themselves.
  • How are visitors handled?
    • Do you have a business that must shut its doors to Customers?
    • Do you have a policy for social distancing?
    • Do you have ample hand sanitizer, or other health and safety items, as necessary?
  • Review policies on paid time off, and benefits related to long-term medical leaves
  • Based on organizational assessment in sections to follow, will you need to lay off?
    • Consider all options available, and new government initiatives:
      • Wage Subsidy
      • Work-Sharing
      • Assistance with EI – keep employees informed of new EI measures, assist with ROE and file directly with Service Canada to avoid delays (as payroll providers may be swamped), and any follow-up requirements (informing of toll-free numbers to waive wait times).
      • Keep employees informed of any new initiatives that they should be aware of such mortgage deferrals, extended tax payment deadlines, other funding programs if they are not EI eligible
  • Ensure you follow directives from the Government
    • You want to show your employees, community and all stakeholders involved that you value the health and safety of the people within your value chain. This instills confidence in your leadership, as well as the community that you serve.
    • Besides penalties or any recourse for not following government orders/directives, the negative perception to your business, from your complete value chain will be virtually irreparable.
  • Manage Mental Health
    • If you are managing to check the other boxes in this list, you have done a phenomenal job managing your employees
    • Have Managers check-in with your employees at the start of each day for a virtual group chat to discuss life, not work, Life!
    • Cannot stress effective communication enough!
    • Prepare for societal changes that impact your employees:
      • Working from home where parents need to care for children as schools have closed
      • Reduced work hours to care for sick loved ones, and to get groceries earlier in the day.

Core Strenghts

  • Understand your market and your Customer
    • Who knew toilet paper would be our business case in times of uncertainty
      • Customer demand may change rapidly, take the time to assess your Customer needs
      • Develop a method of extracting core data directly from customers (reach out directly)
        • Can you develop more of a core product, as necessary (Toilet Paper)
        • Should you move resources from one product line to another, or stop producing entirely (Shut down Paper Towel production for more Toilet paper)
        • Make use of SEO Analytics
    • Communicate well with your customer base to build trust and integrity
      • Is it business as usual?
      • Do you still have store hours, or have you transitioned online?
      • Capitalizing on a crisis through price gouging may result in brand damage, know your market, the increased or decreased demand for your deliverable, and communicate
      • If you are forced to close your business, do you have inventory you can sell before closure, or online?
    • Stress test your top Revenue generators – what is your capacity, what could staff handle if hours reduced, or demand escalates?
      • Consider Management Reporting/Cash Projection software such as Fathom or Spotlight that integrates well with Cloud Based Accounting platforms (or Excel uploads), to measure budgets, projections and forecasts frequently (daily, weekly) and assess against evolving key performance indicators (KPIs).
        • Software typically have free trials to manage costs for short-term assessment
        • Many Advisory service providers employ this expertise to assist with real-time cash projections/forecasting
        • Google/Online analytics can be built directly into software to provide a real-time sales metrics compared to Customer behaviour
    • Understand your Supply Chain
      • Based on Customer assessment, do you need to change anything within your supply chain?
        • More of one inventory source, reduction of another
        • Will you focus on a specific product line, or cut low performing products/services entirely to reduce complexity, and focus resources?
        • Will there be delays in receiving additional supplies or regular supplies?
        • Review contracts for payment obligations – extend payment terms and communicate
        • Manage interaction with deliveries maintaining health and safety of workers and delivery personnel
        • Maintain strong relationships with core supply chain stakeholders, and provide assistance where appropriate as suppliers may be short staff and resources as well
    • Build virtual Shared Services function
      • See “Where should your team work?
      • Determine if there are functions that can be outsourced to reduce cost, and assist with a virtual back office

Financial Management

  • Manage Cash Flow
    • Review major credit covenants in order to determine what targets need to be managed to sustain covenant parameters, and proactively communicate with lenders
    • Communicate with key Customers to determine if liquidity issues will prevent payment, or whether payment terms need to be extended
    • Communicate with supply chain if payments will be delayed, or whether there is opportunity to extend payment terms
    • Reduce non-critical uses of cash
      • Defer tax instalments until after August 31st
      • Bonuses/incentives/taxable benefits
      • Defer intercompany payments where appropriate
      • Create a team to implement all available stimulus options (Wage subsidies, work-sharing, EDC-BDC $10 billion financing opportunities)
      • Defer capital spending, unless current environment has produced a new revenue stream that is sustainable beyond short-term (will high demand for toilet paper be indefinite? Have you moved to online service model/delivery?)
  • Prudent Cost Assessment
    • Make use of lowest interest credit available
      • Do not carry balances on credit card, when lower interest lines of credit available
    • Limit unnecessary travel and associated costs, and utilize virtual meetings from home
    • Reduce expense reimbursement for necessary purchases to once a month – end of month.
    • Assess departments as to whether certain core employees should join a work-sharing agreement
      • Do not force work-sharing to work, do not spend cash that is not there.
      • In some cases, lay-offs are inevitable. Perhaps EI top-ups are more reasonable
    • Per Customer assessment, focus marketing spend accordingly
    • Consider hiring freeze
      • If you have work-sharing units, you cannot hire additional staff into work-sharing unit (you can replace an employee who has quit). However, if you have departments that are not in a work-sharing agreement, you can hire staff without effecting work-sharing unit (i.e. Paper Towel line is in a work-sharing agreement, while Toilet Paper line hires more workers).
  • Conduct Stress Tests
    • Frequent, rolling stress testing of forecasts to develop a relevant action plan
      • Forecast tools such as Spotlight can produce a revised budget and robust Cash forecasts within an hour or 2.
    • Revise your financial plan as you gain better clarity on the suitability of your liquidity.
    • Conduct frequent SEO analytic reviews
      • Pay close attention to consumer demand and abrupt changes in buying behaviour, and allocate resources accordingly
  • Communicate with Shareholders, Creditors, Suppliers and Customers

Assess & Execute

  • Implement Response Team
    • Foster Communication with Executive Team
    • Employ cross-functional team members
    • Assign pillars of responsibility for data assessment and work interdependently to consolidate and create action items
    • Develop Communication lines with stakeholders
    • Employ virtual job scheduling so that team may be mobilized virtually
      • Reduce confusion, allow employees to know exactly what they should be doing
  • Execute Action Items
    • Track agreed Action Items, and set milestones with frequent communication to follow-up how deliverables are tracking
    • Adapt to change! Assess the action plan and change course as new data becomes available
    • Pay attention to the network and resources that have brought you success, and work within it
    • Stay true to your values and the mission of your entity and lead well!
    • Communicate!

Nicholas Coburn

Nicolas Coburn, CPA, CA, has 15+ years of experience spread across Government Audit, Industry Financial & Tax Reporting, and Big 4 Canadian Accounting Firms.

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