Businesses will have a higher probability of first surviving and then prospering if they take a structured and planned approach to the initial lockdown period and any further disruption periods, a leading business adviser says.
Chris Small, managing director at ABC Business Sales, says that by breaking down the upcoming business environment into phases and then reviewing each phase and what characteristics are likely to arise, a structured strategy and planned approach can be applied.
Reducing one big problem into a series of smaller challenges will make the task ahead look less daunting and more achievable.
Small believes the five distinct business phases over the next 12 months will be:
Start your property search
1.Business conditions with full lockdown periods and Covid-19 present and growing.
2.Business conditions with partial lockdown periods and Covid-19 present and controlled.
3.Business conditions with no lockdowns and minimal Covid-19 present and reducing.
4.Business conditions immediately post the removal of Covid-19.
5.Business conditions return back to pre-Covid-19 levels.
Small says the focus for businesses right now should be phase 1.
“These are the business conditions which we are about to enter into for the next four weeks with full lockdown and Covid-19 present and growing,” he says.
“There are three key areas I believe business owners need to focus on, and if they do this effectively they will have a higher probability of surviving and reaching the second business phase.”
The three key areas, Small says, are:
1. Cash and liquidity is king during any business recession. Cash is the lifeblood of any business and even more so during recessionary times. You can manage this area by:
a) Generating a cashflow forecast that is updated daily or weekly depending on the size of your business. Use your actual bank balances as a starting point and add in upcoming receivables and creditor payments to provide forecasted balances. The forecast should be for a minimum of six months, Small’s recommendation is 12 months.
b) Getting in contact with your bank as soon as possible and providing them with your cashflow forecast. This is the document all banks will be most interested in, as it will allow them to calculate what level of extra credit you will need to maintain your business. Request a 20 per cent buffer on top of the cashflow balances your forecast shows.
c) Applying for all the relevant government subsidies available, and adding this into your cashflow forecast.
2. Before committing to any creditor payments, confirm with all your customers the exact days they will pay your invoices. It is a common mistake for many business owners to pay creditors under the assumption their customers will pay on time. Receivables are likely to be delayed during a full lockdown period.
3. Go through your creditor list and mark what is essential to running your business and what is not. For the creditors that are not essential, make contact with them and request relief for a period of time. Your list of creditors in order of priority should read as follows:
i) Essential staff — they need to be paid for the continuation of business.
ii) Essential creditors — they need to be paid for the continuation of business.
iii) Non-essential staff — discuss options including reduced wages and leave without pay options.
iv) Non-essential creditors — discuss options to delay, extend or defer payments.
If you follow the above steps, you have a high probability of getting through this lockdown period, especially given the uncapped wage subsidy and the $500,000 government guaranteed bank loan, which is now available to the majority of businesses. These are the other considerations:
Hold onto key staff
The first key element to retaining key staff is continuing to pay them for their services. The above actions will ensure you have appropriate cash reserves to pay them. Also:
● Be transparent with your staff on all issues and, as much as possible, follow the “no surprises” approach. They will respect you for your transparency, and this will generate more loyalty.
● Include key staff where possible in any decision-making as this will foster an ownership attitude to the situation.
The more staff acting like owners/shareholders, the better for your business.
● Be as positive as possible and continue to talk about the many opportunities that will exist for them when the company gets through these uncertain times.
Hold onto key customers and suppliers
Key suppliers will remain loyal if you show loyalty to them by honouring your payment terms if possible.
If this can’t be achieved, be as transparent and honest as possible about why you can’t meet your obligations.
If you take the “no surprises” approach, they are more than likely to be understanding and provide you with relief or extended terms.
It is unacceptable to not pay with no prior communications. Also:
● Key customers need to receive high levels of communication and reassurance that you can continue to deliver the services and products they are paying you for. Opt for personalised phone calls rather than generic emails; this is the most effective communication technique in crisis situations.
● If customers request or need payment extensions, consider them and have an honest conversation as to why you can or can’t accommodate their request.
Usually there is some middle ground in these situations. You will gain a loyal customer for life if you show integrity and compassion in a crisis situation.
Small says ABC Business Sales have announced that they are opening their doors and phone lines free of charge to any business owner requiring business advice.
