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13th May, 2020

Covid-19: China Business Survival and Managing Business Risk • Recap

On May 13th Russell Brown OBE managing partner of LehmanBrown International Accountants presented the webinar on “China Business Survival and Managing Business Risk” hosted by Kimberly Kirkendall, CPA, President of International Resource Development, Inc. part of the China Resource Network.

The presentation was to attendees coming from all levels of management and businesses across the United States and China, bringing interesting questions which were discussed.

What was discussed

Russell Brown began by discussing the options which business could use to reduce staff costs, all options primarily revolved around the capability to negotiate with all levels of staff. Businesses having difficulty operating in China due to the Covid-19 pandemic could look to negotiate to reduce salaries across the board, to ensure fair treatment to all, or alternatively some form of salary delay scheme by reducing the salary for a period of months to later pay back the staff with interest, or in the worst case terminate staff and negotiate their severance pay.

Termination of a labour contract, however, is not as easy as it may seem, as there are clear criteria which would prohibit the termination of a contract or terminate within 30 days with compensation or even could allow a business to terminate a labour contract immediately without compensation.

There are also rules around layoffs, where a mass layoff of 10 people to 20 percent of the workforce should follow certain procedures as guided by the Labour Law. However, a business should end the contracts according to the priority of each staff member looking at their contract type, family unit and age group, date of joining etc. Russell Brown did share the step by step process for the mass layoffs which include filing with the Labour Bureau.  Nonetheless, Russell Brown offered the advice to avoid mass layoffs when possible, but instead to gradually terminate contracts, while negotiating severance pay with each employee reducing any potential risks legal or problems.

Before moving on to cashflow management, he discussed the ways to calculate the severance pay for employees and went through some tricky real-world examples for terminating contracts to explain the risks which Legal representatives may face.

Due to the Covid-19 pandemic, Russell Brown shared that companies should be managing cashflow forecasts on a short term period basis, e.g. on a weekly, biweekly, and monthly basis, showing all possible situations and developments and running sensitivity analysis under what-if scenarios. He added that such forecasts are vital for businesses to make decisions and regulate their cashflow according to the likely and unlikely risks which may impact their business. Going further, he shared what influences must be considered when creating a forecast and what are common reasons for inaccuracies.

With a forecast in place, a business must then look at both their payables and receivables. For collecting receivables, the business must be able to offer flexible deals or incentives and make sure staff can apply them correctly. While for payables, the business must do its best to pay as slowly as possible while looking for potential deals to reduce or delay payments. Once again, Russell Brown reiterated the importance of negotiating and working closely with clients and suppliers to guarantee a business’ survival. Also discussed was responsibility, as often the attitude internally is that this is the accountants’ job, wherein a crisis it is senior management’s responsibility to help collect receivables, work with customers, work with suppliers and to maintain cash sufficiency.

Russell Brown then went on to discuss who is responsible for business and their repercussions. Those in management who are mostly at risk are Legal Representatives, Board of Directors, and the Supervisors as they are registered with the Government as official positions. Resigning from these management positions, an individual will remain registered with the Government until the company changes the registration. On the other hand, General Managers and CFOs (except an accountants and cashiers registered with the tax bureau) who are not registered with the Government may still be liable and or called into Government inquiries because of their access to information and therefore knowledge of the businesses actions or situation.

To minimize risk during Covid-19 management must take a more hands-on approach to approve all decision and financial movements. He also raised the risks coming from the management of businesses making inappropriate public comments in the eyes of China, which could cause the company in China issues. Companies, therefore, need to have policies on public statements, announcements and press releases.

In conclusion, Russell Brown shared the potential policies that foreign business in China may benefit from such rent reductions or social welfare exemptions. However, most benefits vary on a case by case basis and from the county, province, and cities levels and new policies are being issues continually. Companies, therefore, need to ensure that they have appropriate feeder channels for information to allow timely decisions.

Further Questions

If you were a participant and wanted to ask a specific question regarding your business or did not attend the webinar but have questions regarding was what discussed, you can send an email to enquiries@lehmanbrown.com.

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