Cashflow and monthly operating costs are key

Wed, 8 Apr 2020

AFTER watching Prime Minister Tan Sri Muhyiddin Yassin’s announcement on the enhanced stimulus package for SMEs, my various chat groups came alive with all kinds of comments and opinions. In particular, one chat group which comprises experienced retired senior bankers, entrepreneurs and senior business journalists (all about the same age of 60 and above) stood out for its wisdom and sharp foresight.

When asked about potential SME casualties in this economic crisis, a senior banker commented, “TH... I went through four deep recessions/business cycles, ie, 1987,1997,2007/8, and now 2019/20. Same like you, and no wiser than my friends in this group.

"My gut feeling is that there will be more casualties this time around because the pandemic is world-wide. But like all recessions, the economy will turn around. It will not likely be a V-shaped recovery. We all have to tighten our belts, cut losses, and make sure we survive to enjoy the recovery.”

He is correct, as this recession is like no other. It is the first time that almost all economic activities have stopped in all the major countries in the world at the same time. There is a supply shock as the supply chain has been completely disrupted to a standstill.

There is demand shock as sales of most industries have fallen off the cliff to almost zero during lockdowns, and there is capital market shock as global stock markets crash.

Predicting the timing of the recovery is extremely difficult as we now have to deal with a virus pandemic with no solution in sight. Yes, a complete lockdown can flatten the curve but the risk of a re-occurrence of a new wave of infections is very high when the movement control order (MCO) is lifted. Economic activities have to resume, so we will have to practise some form of restricted MCO for the next six months.

And this affects business.

Sales will continue to be very soft as consumption drops due to lower consumer confidence, higher unemployment and reduced personal income, as widespread paycuts are implemented. As in most recessions, not all businesses will do badly. From experience, consumers tend to trade down, ie, purchase lower-priced alternatives to sustain their lifestyle. Hawker stalls will continue to do well, while higher-priced restaurants will suffer.

The logical conclusion for SME owners is to focus on surviving the next six months. Once the moratorium on your loans ends in October, will you still be standing with the ability to start repaying them? Will you have sufficient cash flow to participate in the economic recovery which will probably start in 2021?

Your survival strategy till October will have to focus on two key issues - 

• cash flow and 
• monthly operating costs.

Managing cash flow 

> Sufficient banking facilities - Since all your loans have been placed under a moratorium (meaning that you won’t need to repay them for the next six months) by your bank, you will need to check if the balance amount of banking facilities will allow you to trade normally.

If not, quickly apply to your bank for additional trading facilities. If you have spare cash, it might be wise to start paying down your loan when you can and not wait till the end of October.

> Cash reserves - You will need to cover March and April losses from your cash reserves. Reduce your losses for the next five months through aggressive cost-cutting. Most businesses will face delayed collections so cash reserves, if available, will be most useful to cover cash-flow deficits.

> Wage subsidy - Expect delays in your claims as the government will not be able to cope with the massive influx of applications. If approved, expect delayed payments of at least a month in your cash-flow planning. The wage subsidy is only for three months but you need to survive the next six months. So, plan accordingly.

> Corporate tax - For companies that will definitely declare a loss in 2020, my advice is to write in to the Inland Revenue Board informing them that you will declare zero profits for the financial year-end 2020, and suspend all tax payments for future projected profits. There is no point loaning the money back to the government when you need it more to survive.

> Deferred EPF payments - Just like bank loans, EPF payments have been deferred for six months when you will have to restructure your payments with the agreement of the EPF. Do not consider this as savings. It goes into accounts payable, interest-free of course.

> Rental subsidy - The announced tax deduction for rental rebates of 30% for three months from April to June will be effective in encouraging private-sector landlords to implement only if double deduction is allowed. In times of need, business partners should help one another. This is how the Chinese business community has been built over the last 100 years in Malaysia.

This is probably the best Bank Negara strategy to help preserve cash-flow liquidity for businesses to continue trading. By allowing the banking system to prevent classifying non-payments after three months as non-performing loans (NPLs), businesses can breathe and continue trading for another six months. Individuals too have more cash in hand to offset the paycuts that will definitely happen. By end-October, Bank Negara must allow another restructuring of existing loans by another six months to businesses who will benefit from the economic recovery.



Reduce monthly operating expenses.

The survival of your company depends on the amount of cash reserves you have to fund losses in March and April and also losses to be incurred from May to October. So, it is imperative that losses are kept to a minimum in the next five months.

Losses are calculated after deducting expenses from net sales. Net sales is gross sales less cost of sales. So, if net sales are down, expenses must come down proportionately, which in this case might not be possible for companies which suffer a big drop in sales.

While your sales revenue is dependent on external factors which are beyond your control, to a major extent, you are in control of your own expenses. For most service companies, payroll forms the biggest portion of the monthly expense. This is normally followed by rental or in some companies, advertising and promotion.

> Rental - At the maximum, expect your landlord to give you a rebate of 30% from April to June. This means that you can factor into your expenses a reduction of 15% in rental payments for the next six months.

> Advertising and promotion - It has been proven in the last recession that companies that continue advertising and conducting promotional activities will sell more than their competitors who stop completely. You are advised to work with your media suppliers to get more bang for the same budget. I am sure the media companies will support you, as they too need sales and have excess inventory to give away.

> Office expenses, allowances and claims - Cut all the unnecessary frills that you can ill-afford. Not much but every penny counts. Spend some on healthcare, though, to look after the team.

> Wages - I have stopped comparing with the Singapore government’s wage subsidy plan because our government does not have sufficient reserves.

With the latest proposed enhanced wage subsidy, it looks like SME owners must take matters into their own hands. Some companies will enjoy reasonable support of up to 30% subsidy on the wage expense, while some will only enjoy 5% to 10%.

Do remember that this is only for three months. Why the government is not exempting EPF payments for six months is beyond my understanding. This will only translate to a higher paycut across the board.

I have an investee company where the senior management has given the board of directors a revised sales forecast, with sales revenue dropping by 20% against the 2020 budget. But no corresponding reduction in expenses was given.

I have replied that this sales forecast might not be achievable and that we should start looking at reducing our expenses, mainly the payroll, which is a massive portion of it.

I would recommend a minimum 20% paycut across the board, freezing all intakes, probably retrenching a few positions deemed not necessary and linking the paycut to sales. If the sales for May to October drop by more than 50%, then the paycut will be more severe like 30%-40% for those who earn above RM4,000. However, if sales recover to its original budget then the salary will revert to its original amount.

Different companies will have to tailor different strategies, depending on the sales performance of the company up to October. For companies where payroll forms the bulk of expenses, detailed human resource requirements must be considered.

Where possible, the fixed salary cost should be changed to a variable cost, as a percentage of sales. This will help minimise losses to a great degree and at the same time save jobs and keep your key employees employed.

Some form of right-sizing is required now. Where possible, eliminate jobs to reduce 10% of your current payroll. Then undertake a paycut of 20% to make total savings of 30%. Then, submit for wage subsidies to the government if your company qualifies, which will probably save you another 5% to 10% of your existing payroll. With immediate savings of 35% to 40% from payroll deduction, you can take your chances with the remaining five months, of which April is already a complete loss for you.

Then my entrepreneur friend asked, “What if the employee does not accept a paycut?”. My answer: “Nobody can stop this employee from leaving the company on his own free will.”

At this moment of truth, SME owners’ only objective is to save the company from going bust. Minimise the losses so that you can stretch your reserves till October.

At the next moment of truth in October, SME owners will have to decide whether to continue or close their business. Don’t forget that you still have deferred EPF payments and the loans with interest to pay off. You can avoid bankruptcy if your business is still alive in October 2020.

From one battle-scarred entrepreneur to all the young entrepreneurs and SME owners out there: “Stay alive today to fight the next battle tomorrow. And you will win again.”

Views expressed here are the writer’s own.



https://www.thestar.com.my/business/business-news/2020/04/08/cash-flow-and-monthly-operating-costs-are-key

When, and How, Does the Coronavirus Pandemic End?

By James Paton
April 4, 2020

With confirmed cases of Covid-19 globally exceeding 1 million and more countries going into lockdown to slow the pandemic, the emerging question is: “When will this all end?” The answer depends in large part on uncertainties about the novel coronavirus that causes the disease, including whether you can get it more than once and how quickly the world’s scientists might produce a vaccine. The cost and benefits of a prolonged shutdown and what different countries can afford, from both an economic and political standpoint, are factors, too.


1. So how does this end?
There’s a consensus that the pandemic will only end with the establishment of so-called herd immunity. That occurs when enough people in a community are protected from a pathogen that it can’t take hold and dies out. There are two paths to that outcome.

• One is immunization. Researchers would have to develop a vaccine that proves safe and effective against the coronavirus, and health authorities would have to get it to a sufficient number of people. 
• The second path to herd immunity is grimmer: It can also come about after a large portion of a community has been infected with a pathogen and develops resistance to it that way.

2. How do we manage until then?
For many countries, the strategy is to lock down movement to dramatically slow the spread, closing businesses and schools, banning gatherings and keeping people at home. The idea is to prevent a huge burst of infections that overwhelms the medical system, causing excessive deaths as care is rationed. “Flattening the curve” staggers cases over a longer period of time and buys authorities and health-care providers time to mobilize --

• to build capacity for testing, 
• for tracking down contacts of those who are infected, and 
• for treating the sick, by expanding hospital facilities, including ventilators and intensive-care units.

3. When can restrictions loosen?
The public shouldn’t expect life to return to normal quickly. Lifting restrictions too early risks inviting a new spike. Authorities in China began to re-open the city of Wuhan, where the pandemic began, two months after it was sealed off from the world, when transmission had virtually halted. But China’s measures were stricter than anywhere else so far, and at least one county has gone back to a lockdown. England’s deputy chief medical officer, Jenny Harries, said lockdown measures there need to last two, three or, ideally, up to six months. Annelies Wilder-Smith, a professor of emerging infectious diseases at the London School of Hygiene and Tropical Medicine, recommends restrictions stay in place until daily cases drop consistently over at least two weeks.


4. Then what?
A road map authored by a group of U.S. health specialists including former Food and Drug Administration commissioner Scott Gottlieb calls for an intermediate stage in which schools and businesses would reopen but gatherings would still be limited. People would continue to be encouraged to keep at a distance from one another, and those at high risk would be advised to limit their time in public. If cases begin to rise again, restrictions would be tightened. Their report, published by the pro-business American Enterprise Institute, is arguably more optimistic than the future envisioned by researchers at Imperial College London. Their models suggest that for at least two-thirds of the time until herd immunity is established, all households would need to reduce contact with schools, workplaces or the public by 75%. In any case, the widespread availability of testing is important in this stage. At the heart of the U.S. plan: at least 750,000 tests per week.


5. Why is testing so important?
This virus is wreaking so much havoc, not because it’s especially lethal, but because it’s insidious; many who are infected are well enough to go about their daily business, unwittingly spreading it to others. That makes it vital to test for infection widely in the population, and to test everyone with symptoms. That way, those who are infectious can be put in isolation and everyone they’ve had close contact with while contagious can be tracked down, tested and if necessary isolated as well, limiting the spread in the community. Another kind of test looks for antibodies to see who has already beaten the virus and is thus unlikely to be re-infected, at least for a time. Once widely available, such tests might enable people who test positive for antibodies to move about more freely.


6. Why does where you are matter?

Authoritarian countries such as China can impose stricter controls on movement and more intrusive means of surveillance, such as house-to-house fever checks, tracing and enforcement of quarantines, and are less vulnerable to pressure from businesses and popular opinion. That gives them powerful tools to keep the virus in check, so long as they are vigilant against imported cases. That’s a more difficult proposition for other nations. The poorest countries can less easily afford the economic losses caused by prolonged restrictions, and often don’t have the health infrastructure for extensive surveillance.


7. How long will a vaccine take?
Dozens of companies and universities around the world are working on it, but there’s no guarantee they will prevail. Vaccine development normally is a long and complex process that includes years of testing to ensure shots are safe and effective. In the coronavirus fight, some of the players aim to deliver a vaccine in 12 to 18 months, an extraordinarily ambitious goal. As well as using tried-and-true approaches, scientists are relying on new technologies, like those that add viral genetic material to human cells, inducing them to make proteins that spur an immune response. Some vaccine specialists believe governments, citizens and investors should temper their optimism. It’s not clear if the methods will work, that the timelines will be met or that companies will be able to manufacture enough shots.


8. What about the second path to herd immunity?
First, it would occur only if recovering from an infection leaves people with lasting immunity. It’s not yet known if that’s the case with the novel coronavirus. The portion of a population that would have to be exposed to the virus to establish herd immunity is also unknown. Generally, it’s high, for example 75% for diphtheria and 91% for measles. Patrick Vallance, the U.K. government’s chief scientific adviser, estimated the figure at 60% in February. How long it would take to reach the necessary threshold would depend on measures governments impose in response to the pandemic. Without tight restrictions, it would be faster yet come at a steep cost in illness and deaths as health systems would be overburdened. Some research assumes the actual number of infections is much higher than the confirmed cases. If that’s true, countries are closer to herd immunity than we know.


9. Are there other variables?
We could get lucky, and the virus could fade with the onset of summer in the northern hemisphere, where most cases are, just like outbreaks of influenza subside with seasonal changes. But it remains unknown whether warmer weather will play a role. Even if the outbreak wanes, it could return in the fall. Some are pinning their hopes on an ultra-effective therapy or a cure.



The Reference Shelf
Related QuickTakes on what you need to know about Covid-19, how it transmits, the quest for treatments and a vaccine, and the seasonality question.
Bloomberg News looks at the hurdles to development of a coronavirus vaccine.
The roadmap published by the American Enterprise Institute and the modeling done by Imperial College London.
An article in MIT Technology Review argues that the pandemic will change our lives, in some ways forever.
A commentary in the New York Times suggests the near future will be like a roller coaster ride.

https://www.bloomberg.com/news/articles/2020-04-03/when-and-how-does-the-coronavirus-pandemic-end-quicktake

COVID-19 Symptoms - Here is what you need to know. Please Observe Social Distancing and Stay at Home.

The lockdown only buys us time: to really defeat the virus we need mass testing now

Instead of endless mass isolation or just waiting for a cure, the UK needs a data-driven, targeted approach to coronavirus testing


SD Biosensor factory in South Korea

‘SD Biosensor, a company in South Korea, is making 350,000 test kits a day, but it is prioritising the US, United Arab Emirates and Indonesia.’ Photograph: Ed Jones/AFP via Getty Images


After squandering valuable time to prepare for the spread of Covid-19 in February and the first half of March, the government made a dramatic U-turn and put the country into lockdown two weeks ago. But amid the drama of shutting down our entire way of life – with kids out of school, shops closed and millions working from home – we appear to have forgotten that lockdown itself is not the solution to coronavirus. It is simply a means of slowing its spread and buying time – while we race to catch up.

The real question facing Britain now is how to most effectively make up for lost time: what can we really do to fight this instead of simply cowering in our homes and waiting for it to blow over? If things carry on much as they are now, one possible scenario is that we will find ourselves in an endless cycle of lockdown and release over the next year – while the population slowly acquires the virus and hopefully gains immunity.

From Chinese data reported to the World Health Organization, we estimate that

• roughly 80% of people who contract the virus will not need medical attention and will have mild symptoms (largely children and people under 40); 
• 14% will have severe disease including pneumonia;
•  5% will require critical care for respiratory failure, septic shock and multi-organ failure; and 
• 1-2% will die regardless of medical care. 

Therefore, the challenge for the government (in the absence of a vaccine or treatment) is to ensure that healthcare capacity is not overwhelmed; that while the virus is transmitted throughout the population, the 19% who require either hospitalisation or an ICU bed are able to access that care and survive.


The burden on the NHS will be tremendous, especially given concerns about lack of appropriate personal protective equipment, and this will have knock-on effects on other services it offers: routine surgery, cancer treatment, the ability to deal with emergencies such as heart attacks and strokes. The decision whether to extend lockdown will be made by looking at

• the modelling of NHS capacity in three weeks’ time as well as 
• assessing public willingness to comply.

In an optimistic version of the above, over the next three to four months an antiviral therapy would be discovered while we hold out for a vaccine. Antiviral therapies would give doctors an additional tool to treat critical patients with, while vaccines would provide a prevention measure so individuals can build up immunity and the necessary antibodies before being exposed to Sars-CoV-2, the virus that causes Covid-19. Effective therapies have helped with how we deal with HIV/Aids (antiretrovirals), malaria (antimalarials) while vaccines have been effective against measles, mumps and rubella. Repurposing a drug that has already been tested for safety in humans would be the quickest path, and clinical trials are taking place for antimalarial cocktails (chloroquine and hydroxychloroquine), remdesivir and plasma therapies, which involve extracting antibodies from recovered patients and injecting them into ill patients.


The endgame would be a vaccine that is widely available, effective and affordable. Currently there are about two dozen vaccine candidates, with several being tested on animals and one imminently due to begin testing on humans. However, time is the problem, as vaccines require three phases of clinical trials to test for safety, side effects and whether they actually work. It will take about a year to 18 months even if all goes to plan – and even then, given all countries would be looking to acquire the vaccine, manufacturing enough of it would present a further challenge.

But instead of quarantining the entire population (and assuming anyone could be carrying the virus), the most pragmatic way out would be via a more nuanced and data-driven approach of mass-testing 75-100,000 people per day. This would not be testing random people but rather those presenting with symptoms, and then tracing all of their contacts (household members, colleagues, flatmates) to ensure they are also tested. All those who are virus-carriers would be put into a mandatory two-week quarantine in their homes, enforced through tracking and fines. This will allow the public health community to identify where exactly the virus is, to break further chains of transmission and to keep case numbers low and within the NHS capacity limit. It would also allow most of society, and the economy, to continue on a somewhat more “normal” basis.


The testing capacity could be built up through using private and university labs, as well as working with South Korea and other partners to bring in rapid diagnostics as quickly as possible. SD Biosensor, a company in South Korea, is making 350,000 test kits a day and is scaling up, but currently is prioritising the US, United Arab Emirates and Indonesia. When a reliable antibody test is available, one that shows whether someone has had it or not, individuals with high likelihood of exposure should be tested to see what percentage of immunity has built up and ensure they can be kept in the workforce.

If we want to work towards the best-case scenario, then we need to

• place the highest political priority on acquiring the testing kits, 
• while drawing on apps and big data to support contact tracing. 

Through this path we can start quarantining only those carrying the virus, and not the entire population. The economy, society and health all win in this plan, and it seems the best way out of our current situation.

Prof Devi Sridhar is chair of global public health at the University of Edinburgh


https://www.theguardian.com/commentisfree/2020/apr/01/lockdown-buys-time-virus-mass-testing-coronavirus-uk?CMP=Share_AndroidApp_News_Feed&fbclid=IwAR2yDiBwqzVWpmA9ZxjzMgnNjKoh1I8lIuxo1DLnoZVC3n1Yw41bO_GUCFw

The Objective of the Lock-down: Stay At Home - Protect Your COMMUNITY against Covid-19

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Health D-G warns of tsunami-like third wave of Covid-19 if Malaysians don’t play their part now

Health D-G warns of tsunami-like third wave of Covid-19 if Malaysians don’t play their part now

Wed, 18 Mar 2020

KUALA LUMPUR, March 18 — Malaysia could suffer a third wave of Covid-19 infections reaching tsunami-like proportions unless Malaysians strictly adhere to social distancing guidelines, Health director-general Datuk Dr Noor Hisham Abdullah said today.

Dr Noor Hisham made the grim prediction as he reminded Malaysians to stay at home as much as possible to avoid Covid-19 from continuing to spread.

“Today is the first day of our ‘movement restriction order’. In simple words ‘please stay at home’ and distance yourself from others.

“We have a small window of opportunity to break the chain of Covid-19 transmission. Please help MoH to play your part, as each and every one of us has the responsibility to take all the precautionary measures to keep ourselves and families safe,” he wrote in a brief message on his Facebook page earlier today when urging for Malaysians to complement the Health Ministry’s efforts to combat Covid-19.

“Failure is not an option here, otherwise, we might face the 3rd wave of the virus. The next one will be as big as a tsunami, more so if we have a lackadaisical attitude.

“I plead to all Malaysians, please take this movement restriction order seriously. ‘Stay at home’,” he concluded.

Malaysia is under the government’s restriction of movement order now from today until March 31, with all public gatherings banned with the aim of preventing crowds from forming and to slow the spread of Covid-19.



https://www.malaymail.com/news/malaysia/2020/03/18/health-d-g-warns-of-tsunami-like-third-wave-of-covid-19-if-malaysians-dont/1847760