With many small businesses only now returning to work after many weeks of inactivity, I thought it might be worth sketching out some of the issues that entrepreneurs are thinking about.
In many sectors, the primary theme of the last three months has been "survival"; that will continue to be the case for many, especially in the hardest hit sectors like retail and hospitality. Over the next few months, though, a new theme is coming into focus: resilience.
Nobody yet knows how the pandemic is going to play out over the next few months; in the worst case scenarios we'll see further outbreaks and further lockdowns; in the best case scenarios we'll see a managed transition back to "normality", with herd immunity and/ or a vaccine available by early next year. How do you manage a business and plan for the future when there is so much uncertainty about the future? Building resilience - the ability to withstand economic, operational and environmental shocks - is the key.
Every small business is unique, so perhaps it's helpful to outline a framework for building resilience that can be applied and tailored to the individual organisation. What might that framework look like? I'm going to suggest three broad areas:
- Financial resilience - being able to withstand financial shocks that affect profitability and liquidity
- Commercial resilience - being able to compete effectively and respond to changes in the market
- Operational resilience - being able to continue to operate the business and manage disruption
Let's look at each in turn.
Many companies' balance sheets will have been depleted over the last few months, notwithstanding the various sources of financial support available from the Government and commercial sources. Businesses have experienced a severe curtailment - or even complete loss - of income, whilst still incurring running costs, albeit perhaps at a reduced level. Customers may be slower to pay; suppliers may be demanding payment up front; and new types of cost may now be incurred (cleaning, PPE etc). Income may be slow to return to pre-Covid levels; the furlough scheme is being scaled back; and deferred tax payments will fall due over the coming months, as will repayments of Bounceback and CBILS loans.
Cash flow modelling is therefore crucial to understanding how financially resilient the business is in a post-lockdown environment; the finances need to be modelled in detail, based on the 'new reality', where this has demonstrably changed from pre-Covid times. Stress testing should ideally be undertaken to assess the financial impacts of a range of different scenarios.
Cash flow forecasts should be updated regularly - even weekly - as the business builds up experience of what is actually happening across all business functions - supply, manufacturing, sales & distribution, marketing etc. Close communication with the bank/ investors is essential; any anticipated funding shortfalls need to be identified and addressed at the earliest opportunity. Contact us at Scholes Chartered Accountants for assistance.
The pandemic has had (and will continue to have) a significant impact on consumer demand and behaviour. For the last few months the emphasis has been on consumer staples and essential services. Supply chains have been disrupted; and new rules and regulations have changed the way business is done. Although we are emerging from lockdown now, some consumer habits are likely to have changed for good. The longer term economic impacts of Covid 19 are likely to affect many markets in profound ways.
Businesses need to review their product and service offerings and make appropriate adjustments in light of changing consumer demand/ behaviours. Ask yourself these questions:
- What are my target markets now?;
- How have target customers' needs and wants changed?;
- What unique value propositions can the business now offer in response?
The seven P's model is useful for considering how to adjust different elements in your marketing mix: Product; Price; Promotion; Place; Packaging; Positioning; People.
Focusing on customer relationships, strengthening customer engagement and monitoring emerging trends in consumer behaviour will all help.
I suspect that in many small businesses a significant proportion of the "back to work" activity is focused on operational matters, and perhaps with good reason; Covid 19 has caused massive operational disruption and will continue to do so in certain areas for some time to come.
Consider what you need to do to minimise any further disruption in each of these areas:
- Employees - what is the plan for returning staff to work; will there be a phased return or all in one; are there any special circumstances affecting individual employees; have all appropriate workplace safety measures been established; will there be temporary or permanent changes in working patterns; what about the contractual issues? Is training required to make sure new processes and procedures are correctly applied?
- Supply chain - how has the supply chain been impacted by the pandemic? What measures need to be taken to protect business-critical supply lines and avoid the potential for stock outs in the event of further lockdowns? Also, review the impact of social distancing on productivity and workflow; and consider what further modifications/ improvements are required.
- Workplace - have measures been taken to make sure the business complies with new Government rules to protect the safety of staff and members of the public (if on premises); what about hygiene practices and PPE?; what about employee travel to and from work? Will remote meetings be supported and encouraged? What role will remote working play in future?
- Technology - what technology does the business require to operate effectively in the new environment, and how does its current setup compare? Have business continuity/ disaster recovery plans been updated and tested? Have cyber security measures been reviewed and updated?
- Management & internal control - ultimately, to maximise its chances of survival - and prosperity - any business needs to be well managed and controlled. The swift imposition of lockdown may have resulted in temporary changes to/ relaxations of normal management protocols and internal controls. What is justifiable in times of crisis may however be harmful in the long run, so it is important now to review the business's management and internal control processes, to ensure they remain robust and fit for purpose. This is particularly so where there have been fundamental - and permanent - changes resulting from Covid 19, such as changes in:
- the workforce (or individual roles & responsibilities);
- business processes (in other words working practices);
- the product portfolio, and / or the markets in which the business operates;
- the environment - e.g. suppliers, competitors, substitute products, new entrants
If you'd like to share your post-lockdown revival story, or if you'd like some assistance with any of the matters discussed in this article, please feel welcome to contact us today.