Generally, insurance policies for business do not cover business interruption or supply disruption caused by a pandemic like COVID-19. Property insurance is designed to protect the physical assets of a business against loss or damage from a range of causes, whether specific perils named in the policy or comprehensive. Beyond this, some organizations may have purchased specialized business interruption coverage – generally an add-on to an existing business insurance policy that covers continuing expenses or replaces lost profits in the event of a business temporarily needing to shut down. With these policies, a significant issue is defining the period of indemnity or restoration – policies will pay business income loss through to the point that the business is restored or when the coverage expires – usually 12 months from the beginning of the interruption.

For more information, see the information on the IBC’s website.

Sadly, while many Canadian tourism businesses are looking at creative ways of sustaining their operations during the COVID-19 pandemic, others will find the challenges of remaining afloat are too much, and will need to close down. Closing a business in Canada is not difficult, but there are various steps you will need to go through. 

  1. Cancel your business registration for your sole proprietorship/partnership, or dissolve your corporation voluntarily. The forms for doing so are different in each province. Here are links to the relevant web pages for Ontario, Quebec, British Columbia and Alberta.  
  2. Dissolve your corporation. This needs a special resolution to be passed at a meeting (or the written consent) of all voting shareholders.  Again, here are links to the relevant forms for Ontario, Quebec, British Columbia and Alberta.
  3. Wind up your payroll accounts. All CPP contributions, EI premiums and income tax deductions need to be sent to your tax centre within seven days of your business ending.
  4. Submit your final tax return to the CRA, including a copy of your articles of dissolution (to avoid having to continue to file an annual tax return for the dissolved company).
  5. Close down your sales tax accounts. Your accounts for the GST, HST and PST all need to be closed, with any outstanding amounts paid, via form RC145, which you need to send to the CRA. There are slightly different procedures in Quebec, British Columbia and Saskatchewan. 
  6. Notify your municipality that your business has closed if you have obtained a business licence to operate there.  

Creating new revenue strategies

Your revenue growth strategy will be contingent on a number of scenarios and estimates that you model and plan for. Tourism businesses, especially those that rely on international travellers, are in a unique situation because the future of travel is dependent on border openings and complex government negotiations and you will need to consider your costs in different scenarios.

As health regulations and physical distancing requirements change, the impact on revenue will vary. Some tourism sectors will be more negatively impacted by the rules than others, however, new consumer preferences and expectations will play a role in demand and spend too.

Here are some sector-specific considerations when estimating future revenue:

Using financial ratios 

When banks and other lenders want to understand the strength of a business, they typically use financial ratios. Financial ratios can provide unique insights about a business, and they can help to measure trends and progress. They are extremely useful for small business owners that want to know how their business is performing from a financial perspective.

Here are some of the key ratios to consider:

1. Cash flow to Debt = (Net Income + Depreciation) / Total Debt

This ratio can help to predict liquidity problems.

2. Net Profit Margin = (Total Revenue – Total Expenses) / Total Revenue

This ratio shows how successful a company is at managing costs (for a hotel, everything from staff costs to cleaning  supplies and marketing) and converting revenue (chiefly, income from guests) to profit.

3. Gross Margin = (Sales – Cost of Goods Sold) / Total Sales

This ratio can alert you to issues you may have paying operating expenses.

4. Sales per Employee = Annual revenue / Number of employees

This is a useful metric to help estimate staffing level during recovery – for a hotel, the relationship between occupancy rate and staffing levels.

To use ratios effectively, you will need to set up a spreadsheet for tracking and then pick a timeframe that you can commit to, such as on a quarterly basis. If you are using accounting software, you will likely be able to access a ratio analysis. Enlist the help of your accountant for an expert opinion and advice on how to action insights.

Monitoring financial performance

The road to recovery will require ongoing financial monitoring along with identified metrics and targets that you can work towards. You will need to make a concerted effort to monitor your budgets and financial statements, ensure that costs are reduced and activities are aligned with expected forecasts. It is critical that you stay alert to changing conditions and are ready to respond to new issues as you navigate your way back to stability.

To get a snapshot of your business’s financial health and keep money flowing, review these financial statements frequently and at the end of the year:

  1. Balance sheet: Shows the health of your business at any point in time. 
  2. Profit and loss statement: Reveals income and expenses over a period of time. 
  3. Cash flow statement: Shows money coming in and out for a period of time.

Preparing a cash flow budget

When a crisis happens, you need to ensure your financial response matches the scale of the impact and takes into consideration the potential medium and long-term consequences for your business. This is where a budget comes in handy, as it represents the future activities of your business in financial terms and covers all functional areas such as marketing, IT, human resources, and operations. 

A cash flow budget is a planning exercise that tracks the money flowing into and out of your business on a monthly basis, revealing shortfalls and potential problem areas in advance. While it requires some upfront work, getting into a regular cash flow budgeting and monitoring process can help you survive this crisis and even emerge stronger on the other side. Here are the components and steps involved in preparing a cash flow budget:

Intelligence from your tourism industry association, destination marketing organization, regional tourism organization, provincial marketing organization and other tourism operators in your community can help you estimate your monthly sales and income during different scenarios (reopening, ramp up, and low period).

Managing accounts receivable

Regular cash flow monitoring, combined with proactive accounts receivable procedures and practices, can help boost your chances of business survival today. Accounts receivable is a critical piece of the cash flow management process because it represents the money owed to you for goods or services. The faster cash comes into your business, the better. 

Due to the disruption of COVID-19, businesses of all sizes are making efforts to adjust their receivable practices and policies to their benefit. While this sounds like a logical approach to follow, it is important to remain flexible and responsive to your customer and supplier needs to maintain relationships, and prevent unnecessary strain on your supply chain. 

Try to implement some of these common techniques to improve your cash flow position: 

  1. Double-check invoices to prevent errors and inaccuracies. 
  2. Offer early payment discounts.
  3. Send invoices to your customers faster.
  4. Develop a receivables collection policy and follow it.
  5. Conduct a monthly review of your outstanding receivables. Review “aged accounts”, which are accounts conforming to accepted periods of 30, 60, or 90 days from the date of the sale, and calculate any interest charges that have accumulated.
  6. Call customers with overdue accounts. This will not only to prompt them to pay but to help maintain strong business relationships with them.
  7. Look for other local businesses to collaborate and innovate with to keep revenue flowing. 

Managing accounts payable 

Just as the money flowing into your business is important, understanding and effectively controlling the money flowing out of your business is critical as well. Accounts payable refers to the money you owe suppliers for goods and services that you have used but not yet paid for (for instance, the ingredients a restaurant sources from its suppliers). The overall objective of a payables strategy is to keep cash in your business for as long as possible, to create stability and protection as the pandemic continues. By streamlining and staying on top of payables, you can achieve significant benefits and likely an immediate impact on cash flow.

Try to implement some of these common tactics to improve your cash flow position from payables:

  1. Track your bills and avoid late fees and interest.
  2. Understand the main payments you need to make.
  3. Try to stretch payments by offering to pay slightly more for additional time.
  4. Compare your invoices to purchase orders and statements.
  5. Investigate and appeal any discrepancies that you uncover.
  6. Establish payment agreements with your most critical suppliers, and reconsider other relationships. 
  7. Eliminate costly credit by consolidating debts where possible.
  8. Use financing for major asset purchases that must go forward, rather than draining cash.
  9. Understand where you have struggled to meet your financial commitments in the past.

Managing costs

During the pandemic, you will need to take a look at both variable and fixed costs within your business to see where reductions can be made to free up cash. Before you begin a detailed review, make sure you have all of the data you need from all areas of your organization so you can look carefully at each line item. It is also important to establish meaningful metrics, so you can keep tracking them and take action before your next review.

Consider these practices and strategies:

  1. Think about costs during different scenarios: 1. Closed, 2. Pre-opening, 3. Ramp-up, 4. Low period
  2. Determine which costs will stay the same and which will increase due to new health regulations (i.e., additional cleaning, training).
  3. Brainstorm with employees to find potential savings. Create a reward system as an incentive.
  4. Reduce inventory to align with forecasts, and eliminate waste.
  5. Compare the profitability of different products and/or locations to make cost reductions.
  6. Implement reduced hours for employees and redistribute work.
  7. Review complimentary and non-essential items (e.g., flowers, magazine subscriptions) and reassess for value.
  8. Consider selling and then leasing assets back to raise cash.
  9. Work with an accountant of financial advisor to create an efficient and effective tax management plan.

Being prepared for financial conversations

Even though you may be experiencing a great deal of stress, it is important to keep a clear mind and take the time to prepare for financial conversations before they happen. Whether you are approaching a friend, family member, or a traditional bank for a loan, the due diligence requirements during regular times will still apply. Each source will have different interests, such as the potential return on investment or your ability to repay a loan. It is critical that you anticipate concerns and know what documentation each source needs, or at the very least, begin conversations with a good level of knowledge about your financial situation.

Here are some tips to ensure you are prepared:

  • Have your cash flow budget ready. Know how much you need to sustain your business today and during recovery over the medium to long-term.
  • Know the level of debt you are comfortable with and what your business can handle.
  • Be realistic with your revenue forecasts.
  • Relief funding and support programs can be highly competitive. Find out the criteria and follow the instructions carefully and thoroughly. 
  • If a funding application is rejected, take the opportunity to ask for feedback, and if possible, resubmit.
  • Do your own due diligence and read over agreements carefully, understand the caveats.
  • Go with an understanding of your financial position and performance before the pandemic began.