Vaccinate your business for COVID-19
9 considerations to prepare your business for a recession
These are surreal times to be alive. I’m 48 and have never experienced anything like the COVID-19 epidemic. Not only is every government in their respective countries struggling to deal with the pandemic outbreak, but they are also trying to balance the resulting seismic economic impact. To stimulate the economy and deter a recession, central banks have used almost all their ammo by lowering interest rates to near zero. Yet the markets remain as turbulent as flying a paper plane in a hurricane.
I’m not going to spend time discussing macro economics since that feels too far out of reach for the people who run a business and have no idea what to do in times like this. I’m not going to talk about remote workforces or staff morale. There are enough articles out there that deal with this too. What I haven’t seen yet is a discussion on how to survive this crisis. Let’s focus on what a small to medium sized business owner should do to weather this storm and live to see the summer of 2020.
First off, governments are talking in “weeks” to contain the virus and return to a “business as usual” status. But most experts are suggesting that we are several months away from getting back to life as it was (most suggesting a July - August timeframe). If you are preparing your business to survive weeks, you may not survive. I believe you need to prepare for the worst case outcome look to a farther horizon given all the unknowns we currently face.
The following topics are the main things you need to focus on immediately to ensure your longevity as a business for the perilous road ahead.
Batten down the hatches
Many years ago, I was given advice during my most difficult chapter of my career / life from a friend that really resonated with me: “Sometimes it’s ok to just tread water”. This nugget of wisdom was exceedingly helpful given the mindset most entrepreneurs subscribe to, which is to “grow, grow, grow”. The general, overriding theme is to go into a process of battening down the hatches. Prospects of growth, expansion, M&A, business development, SKU expansions, etc all have to be prioritized behind keeping your business alive in the short term.
“Sometimes it’s ok to just tread water”
Revenue forecasting
Many entrepreneurs don’t do forecasts, which in the best of days is a bad practice, but completing a sales forecast is critical. Even more critical is the cadence at which you update it. Sales forecasts are usually projected annually and broken down by month. But in this environment, doing a sales forecast update WEEKLY is vital. Too many variables are changing hourly in the world and staying abreast of how your clients and customers are responding and the effect this has on your business is vital. Also, look for trends in your own business. If your business is off 20% right now, watch to see the spread on this revenue to telegraph the direction and gap that is being created to understand where you may be in a month. Yesterday, YPO International published survey with input from almost 3000 CEO’s around the world. 20% of these CEO’s are currently experiencing a large (20%+ negative impact) in their sales while 41% are expecting a large (20%+ negative impact) in their sales in the next 6 months. Accurate forecasting is a vital tool you need at your disposal.
Cashflow
Understanding the effects of your revenue changes will give you a sense of your profit forecast and thus your cash position in the coming months. Knowing this information now allows you to make strategic decisions in real time to avoid catastrophic losses in your business. Again, businesses should make a practice of cash flow projections, but never is it more vital than in this environment to understand what your cash flow is currently and how it will change in the coming months. This knowledge will guide your decisions as a business owner as to what levers you need to pull to ensure survival. Also, beware that your customers are likely to extend their payables to you and stretch your cash challenges even father. Ensure you have electronic direct payment in place and remove the human element. Have frank conversations with you customers to ensure you are aware of their intentions also.
Banking and debt
Unless you have a war chest of cash built (which every business should aspire to for exactly this situation), then you need to pay extraordinary attention to your cash flow projections and sales volumes. During times of economic crisis you can very quickly go deep into your line of credit and hit a wall. Banks at this stage, coming off a bull market, are seemingly reasonable. If you are worried about your cash flow position in the coming weeks or months, look to reduce your debt burdens. You can ask the bank if you can pay interest only for 6 months while this all blows over. You can sometimes receive a deferral of payments (but harder to get). Banks don’t want to send you to “special accounts” (the step before calling loans) unless it’s absolutely necessary, so if you have strong fundamentals in business, they will work with you to ensure you return to profitability in the future. Also, don’t keep your banking partner in the dark. They know the world is fucked up right now, so you’re not going to surprise them with bad news. This is the time you need to lean on your relationship and the corporate equity you have built to find a solution that works for you during this situation.
“Try to gain ground over your competitors who are likely taking their foot off the gas right now”
Staffing
Understanding your sales forecast and cashflow projections well (and frequently) will allow you to understand your staffing situation. In the US, Treasury Secretary, Steven Mnuchin suggested unemployment rates could drive as high as 20% if measures aren’t effective to contain the virus. In many industries and businesses, layoffs are imminent. If you are in the unenviable position of having to make layoffs, consider the following:
Cut fast and cut deep - Nothing unravels staff more then frequent, unpredictable cuts all around them. It’s takes their eye off the ball and creates panic and uncertainty. If you do have to reduce staff, make the cuts based on good information and resist the urge to “cut as you go”. Cutting in dribs and drabs creates anarchy.
Remove your under-performers first - If there is a silver lining in situations like this, it is to remove the under-performers first. Make sure you consult with your management team and recommend removing these people first.
Don’t leave your laid off employees flapping in the wind - Do the homework for them if you do need to lay off people. Understand their entitlements and provide direction for things like access to EI, etc. They are people, with families and lives and when you drop a bomb on them, they can freeze up and not know where to go next. Help them understand their options.
Stay in touch - Ensure for those you have to begrudgingly have to part ways with that you stay in touch with them afterwards. When life returns to normal, they will want to come back if they are treated fairly and with respect.
Solicit feedback from your staff - I know of a story where a business owner had to make reductions and consulting their staff first. The staff floated the idea of everyone taking a 20% pay reduction versus layoffs. The sentiment was it was better for many to feel small pain versus a few to feel a lot. Your staff may surprise you with their ideas and resilience if you treat them with respect and include them in your strategies.
Sales and Marketing
Continuing sales and marketing seems like a crazy proposition at a time like this, but if you are in a business that has a sales focus, I would encourage them to work remotely and continue filling the funnel. And if that’s not a possibility, then have them focus on sales planning (prospecting strategies, lead generation, geographic focus, etc).
From a marketing perspective, you may not feel like it’s appropriate to continue “marketing”, but you should definitely have a marketing plan ready for when the market settles. Marketing should be working harder than ever before along with their sales counterpart to ensure you stay communicating internally and externally and try to gain ground over your competitors who are likely taking their foot off the gas right now.
“Never waste a good crisis”
Supply chains
This crisis has shown many businesses who have had their supply chains disrupted that perhaps cost isn’t everything. I was speaking to a senior exec at RBC this week and they suggested that they believe the markets which have gone through a massive period of globalization, will now enter a period of de-globalization. Finding strategic partners and supply chains locally would pay off big for local economies in times like these. Use this time to consider your supply chains and how you rebuild them when you emerge.
Cost controls
Right now, understanding your cost centres is imperative. Setting a strict cost control policy for your company and expressing it corporately is vital. All discretionary spending needs to be limited or eliminated. See if your business partners may be able to help you in cost cutting. For example, would your leasing company give you a couple months deferral? Would your landlord do the same? Can you and your shareholders reduce or defer a percentage of their salaries for a few weeks/ months?
Use your downtime wisely
Lastly, if you find yourself having downtime due to this crisis, don’t just spend your time glued to the news. Use this time for strategic planning, reflection and ideas on how you’ll emerge from and be better, stronger than ever before.
Never waste a good crisis. Times like this require deep strategy and reflection. What did this teach you? What would you have done differently if you got the past couple of years back? Times like this can be a tough teacher, but don’t ignore what you have learned and especially don’t ignore how you can operate differently when we emerge from this crisis.
I get it. This is a gut-wrenching time to be a business owner. You’ll face the stiffest headwinds of your life in the coming months. Be strong. Be smart. Talk to other entrepreneurs. Stay close to your exec team. Communicate. Be the leader your organization needs you to be right now. And finally remember, “It’s ok to just tread water sometimes” and don’t beat yourself up. Be good to yourself and breath. This too shall pass.