Why This Matters Right Now
This article is not focused on the politics behind the situation. The concern for finance teams is the financial impact that follows when disruption begins. A crisis affects far more than operations. It reaches into cash flow, contractual obligations, reporting requirements and the reliability of forecasts.
Some businesses have direct exposure through employees, customers or operations in the region. Others may only discover their exposure through supply chains, logistics partners or trading counterparties.
Either way, once disruption begins the finance function must respond quickly and methodically. Waiting until quarter end to assess the impact is not realistic. Financial decisions need to be made while the situation is still evolving.
The guidance below applies to any crisis situation. It is being published now because the correct time to respond is at the moment disruption begins.
- Protect Cash First
In a crisis, survival is determined by cash.
Profit forecasts and strategic plans quickly become secondary if a business cannot meet payroll, supplier payments or debt obligations. The first responsibility of the finance team is to obtain a clear and current view of available cash and then take steps to preserve it.
Immediate actions to consider
Pause discretionary spending until the CFO or finance director has reviewed it.
Identify the minimum cost base required to keep the business operating. This is the level of expenditure below which operations would stop.
Accelerate the collection of receivables. Prioritise the largest balances and customers who may be affected by the disruption.
Open discussions with suppliers about extending payment terms where possible. Most suppliers understand that temporary flexibility can help preserve long term relationships.
If the business has access to revolving credit facilities, consider drawing them down early before credit conditions tighten.
Shift from monthly reporting to weekly cash flow monitoring. Monthly reporting cycles move too slowly during periods of instability.
The 13 week cash flow forecast
Every business should maintain a rolling 13 week cash flow forecast during periods of uncertainty.
Banks, lenders and restructuring advisers usually request this document first. Businesses that attempt to build it quickly under pressure often produce inaccurate figures that undermine credibility.
At minimum, the model should include three scenarios.
Base case reflecting current expectations.
Downside scenario reflecting moderate disruption.
Severe downside scenario reflecting a worst case position.
The model should be reviewed and updated every week.
- Understand Your Exposure
Before meaningful decisions can be made, the business needs a clear picture of where its financial exposure sits.
This process involves both risk management and accounting judgment.
Receivables
Run an aged debtor report immediately and identify customers who have exposure to the affected region.
For each material balance, ask whether the customer can realistically pay within normal terms under current conditions.
If the answer is uncertain, a provision should be considered. Auditors will expect evidence that credit risk assessments were updated using current information rather than hindsight.
Contracts and revenue recognition
Review material contracts connected to the region and determine the current status of each agreement.
Consider whether performance obligations have already been fulfilled, are still in progress, or can no longer be completed.
Under IFRS 15 or FRS 102 Section 23, revenue cannot be recognised if the business is no longer able to deliver what was promised in the contract.
Force majeure clauses should also be reviewed carefully since they can affect both payment rights and performance obligations.
Assets
Assets located in or moving through the affected region must be assessed for impairment.
These may include inventory, machinery, equipment or property.
Accounting rules require that an asset cannot remain recorded above its recoverable value. If access to the asset is restricted, the asset has been damaged, or market demand has been disrupted, an impairment review is required.
Foreign currency exposure
Businesses holding balances, receivables or loans in affected currencies should review their treatment under IAS 21 or FRS 102 Section 30.
Existing hedging arrangements should also be reviewed to determine whether they remain effective under current conditions.
- Do Not Ignore Reporting Obligations
Operational disruption does not automatically pause statutory reporting obligations.
Statutory deadlines
Annual accounts, confirmation statements, VAT returns, payroll filings and corporation tax submissions continue on their normal schedule unless regulators formally grant extensions.
Businesses should monitor updates from regulators and apply for extensions quickly where they are available.
Going concern assessment
Directors must perform a proper going concern assessment if the business has significant exposure to the crisis.
This involves evaluating whether the business can meet its obligations for at least twelve months from the date the financial statements are approved.
The analysis should include scenario testing and should be documented clearly. Auditors will expect to see evidence supporting the assumptions used.
In situations where the outlook is changing rapidly, the assessment may need to be revisited before the next reporting cycle.
Provisions and contingent liabilities
Crisis conditions often increase exposure to legal claims, restructuring costs, credit losses and onerous contracts.
Each of these should be evaluated under IAS 37 or FRS 102 Section 21.
Where a present obligation exists and an outflow of resources is likely, a provision should be recognised.
Impairment reviews
Goodwill, investments and long lived assets connected to the affected region should be reviewed for impairment when indicators appear.
A crisis usually represents such an indicator. The assumptions used in impairment calculations should be documented carefully.
Advisory note: track crisis costs separately
It is worth creating dedicated ledger codes or cost centres for crisis related expenditure.
This simple step provides several benefits. It simplifies insurance claims, supports grant applications and helps management distinguish between underlying performance and crisis related costs.
- Speak With Lenders Early
One of the most damaging actions during a crisis is surprising lenders.
Banks are generally more supportive when businesses approach them early with accurate information and a realistic plan.
If there is a possibility that financial covenants may be breached, the relationship manager should be contacted immediately.
Provide lenders with updated cash flow forecasts, scenario analysis and the steps management is taking to address the situation.
Where appropriate, lenders may agree to covenant waivers, temporary amendments or short term covenant holidays.
If additional financing becomes necessary, many government supported lending programmes require up to date financial information and credible cash flow forecasts.
Businesses that maintain accurate financial records are usually able to access funding faster.
- Review Insurance Coverage
Insurance policies should be reviewed before losses fully materialise.
Key areas to examine include:
Business interruption insurance. Determine whether the policy covers disruption caused by regional instability or infrastructure failures.
Trade credit insurance. Check whether unpaid receivables are covered and whether political risk exclusions apply.
Employer liability and travel insurance. Confirm whether employees working or travelling in the region are covered, including evacuation if required.
Goods in transit insurance. Ensure shipments passing through the affected region are protected against loss or disruption.
Most insurance policies include strict notification deadlines. Insurers should be informed as soon as possible when a potential claim arises.
- When Restructuring Becomes Necessary
In some cases the financial impact may be severe enough to require restructuring.
This situation can arise if the crisis results in the loss of a major customer, the failure of a key supplier or the withdrawal of credit facilities.
Accounting treatment becomes more complex at this stage.
Debt that breaches financial covenants may need to be classified as current on the balance sheet even if its contractual maturity is longer.
Debt modifications or forgiveness must be accounted for under IFRS 9 or FRS 102 Section 11.
Director loan accounts and related party balances should be reconciled carefully since they receive increased scrutiny during restructuring.
All communication with creditors should be documented.
After the Crisis
When conditions stabilise, the finance team must return the business to normal financial operations.
Temporary accounting workarounds should be cleared. Deferred costs or accelerated revenue entries recorded during the crisis should be reviewed.
Important accounting judgments made during the period should be documented because auditors will likely request this evidence.
Many businesses also update their business continuity plans based on what they learned during the disruption.
Final Thoughts
Crises rarely arrive at convenient times.
They do not wait for year end reporting or for finance teams to prepare new forecasts. Businesses that manage disruption successfully tend to have strong financial controls in place before problems begin.
Equally important is the ability of finance teams to respond quickly once conditions change.
If recent events have exposed weaknesses in financial reporting, internal controls or business continuity planning, addressing them now will leave the business far better prepared for the next disruption.
