As mentioned in yesterday’s blog post, today we are going to have a look at some of the things business owners can do to prep for the oncoming recession. Note that many of the suggestions contained in this article are also really good business practices that you should be doing post-recession even. Without wasting any more time, let’s get stuck into it!
No. 1: Re-think your business plan
COVID-19 has totally changed the way we do business. Physical contact is a no-no and spending habits have changed. Luxury items and entertainment have become less important and people are stockpiling essentials. Funnily enough, some people are still stockpiling toilet paper (which I still think is dumb).
At this point, you need to think about your core business. You need to think about how it has been impacted by COVID-19. Ask yourself questions like:
- How has it affected your supply chain?
- How has it changed the way your customers behave?
- How has it impacted your usual business practices?
If you can answer all the above questions with ‘zero to little impact’ then you’re pretty good. If any of those questions are answered with ‘quite significantly’ then you need to start re-thinking your business plan and the way you usually do things.
Let’s take an example:
Janet owns and operates a childcare business. The COVID-19 outbreak has caused her business to go into lockdown and she can’t operate for at least a month (likely more, depending on what the government’s decision is in the future).
Fortunately, COVID-19 hasn’t affected her supply chain much as she can still order in groceries and stationery online from her suppliers.
However, her customers have significantly changed their behaviour. Parents are spooked to say the least and the general sentiment is that no one wants their kids to be around crowds of other children and potentially catch or spread the virus. Even after lockdown ends, Janet is unsure that parents will return to their regular pre-COVID-19 behaviours. As more parents start to work from home, she wonders if there will still be demand for her business in the near future.
The COVID-19 outbreak has also impacted her usual business practices. At the start of the outbreak, she was getting children to wash their hands before entering the premises. She had gotten all her team members face masks to wear. She had also started a disinfecting regime of all surfaces at the end of each day. It was a lot of work but she felt that it needed doing to build customer confidence in her business.
Obviously, the COVID-19 outbreak has affected Janet’s business in a big way. So now she needs to think about how her business can move forward into the future. She has two options she can pursue:
- Liquidate her business and enter receivership
Not a bad move. Plus as the owner/director of her business, it might be a prudent business decision to make – that way she limits her liability in the business and creditors can’t go after her personal assets. Something which she definitely does not want happening in this current economic situation. If the situation is such that she cannot continue operating, she might just have to bite the bullet and call it quits. For now at least.
Do bear in mind that if you are thinking of liquidating your business – you should first consult with your accountant and lawyer before doing so. There are some legal and tax implications to winding up your business that you need to be aware of.
- Innovate new ways of doing business
As a childcare provider, Janet needs to think about what she can do to innovate new business practices. Reduced physical contact and social distancing are two obstacles that she needs to work around. She needs to look at what the core offering of her business is. Let’s say the core offering is childcare – what other ways can her business provide childcare that does not require physical presence? Could she and her team produce child-friendly media such as videos, colouring books and songs for children? Could she, after lock down ends, start a baby-sitting agency where her team members deal with individual families instead of a large group of kids while their parents are working? Could she come up with new policies that are stricter about having no symptomatic children on her business premises?
Innovation is never easy – but necessity is often the mother of invention. These are trying times for all businesses and ultimately it is the businesses that can change and adapt that will emerge stronger from this crisis. Have a discussion with all your team members about what your business can do differently in these changing times.
No. 2: Manage your cash flow
If you’ve been following my blog, you will know that I am a huge fan of cash budgets and keeping track of your cash flow. Before you make any decisions about how to run your business, you need to consider what your cash situation will look like in the months to come.
To be able to accurately predict your cash in flows in the near future, you need to know what your cash movements have been like in the past few months. To this end, you need to keep track of your daily/weekly/monthly cash movements and use that information to plan ahead and design a cash budget. I’ve discussed cash flow management in a previous blog post. So I’m not going to repeat what I’ve already written here. But I will do you a solid and provide you with a handy dandy monthly cash flow budget template which you can get here.
If you are already using an accounting software like Xero, you can easily generate cash flow reports from the system and build budgets. If you are using Pocketsmith – you can even create automatic budgets based on all your recorded transactions.
Once you have figured out how much cash you will need to operate over the next several months or so, you can determine how much you need to borrow or start stashing away to support your business in the months to come. You may want to do a bunch of sensitivity testing and modelling for different cash scenarios which I will discuss in a later blog post because it deserves a discussion all on its own. For now, just focus on figuring out how much cash your business needs to survive.
No. 3: Call for help
You need to get out there and find out what sort of help your government has put in place to help businesses survive the COVID-19 crisis. If you are NZ-based you will know that the government has announced a whole raft of financial aid packages which businesses can benefit from such as:
I’ve personally written about some of these measures such as the wage subsidy and the tax reliefs. You should also be reading the official announcements on these measures, other articles on these matters and consult with other experts in the area to determine your business eligibility for these aid packages and if applying for them is a good idea (hint: it usually IS a good idea).
Beyond the government help, you need to start talking to all your business stakeholders about how you can help each other through these trying times.
Have a talk with your supplier on getting some discounts, deferring some payments or reducing some of your purchasing commitments.
Have a chat with your customers about how their buying needs have changed due to the crisis and how you can continue to serve and support them through the crisis.
Have a chat with your team and talk about the business finances and how the business will operate in the months to come.
Have a discussion with your banker – ask them what sort of financial support they can offer and what sort of loan packages are suitable for your business at this point in time.
Ultimately, you will need to put on your thickest skin, get out there and not be ashamed of asking for help. We are all in this together and we have to do whatever we can to help each other. Every business and every individual is inter-connected. If we can’t help each other at this time, then we can’t expect to survive this oncoming recession.
That’s it for the tips, now let’s look at some questions you might ask:
Should I be getting income protection insurance for my business?
If you asked me this question 6 months ago, I would have said yes. Do it. In fact, I even wrote about it. But if you are asking me this question now, I would say – don’t waste your time. Most insurance companies have altogether stopped taking on income protection clients or have tightened the requirements surrounding payout claims (IE – only allowing claims for loss of income due to illness/disability, not for business closure and/or redundancy).
Even if there are companies that still have business closure income protection schemes – you can be sure that they will charge you through the nose in terms of premiums for these types of services. Sorry bub, it’s too late to apply for income protection now. Whatever terms you will be getting out there in the market won’t be very favourable towards you anyway.
Should I start laying off my team members to cut costs?
Ok, so my answer is going to sound biased (having been laid off myself): No. Don’t lay off your team members. But let me clarify that I’m not saying this as an unemployed bludger. There are some good reasons why you should not be laying off your team members at the first sign of financial distress.
First of all, recessions are caused by a drop in overall spending in the economy. If you start laying off your employees left and right, you are taking more money out of the economy and you are depriving individuals in the community of their ability to spend money. When they stop spending money, it is going to affect all the other businesses that they would normally support with their income which will prolong the recession. Since we are all interconnected through the economy – you can be sure that laying off your employees will bite you in the bum in the long run.
Second of all, your team IS your business. I know I have mentioned this before but it is a point I like to make over and over again. If you start laying off your employees as a knee-jerk reaction to the financial crisis then that reflects on your values as an employer and how much you value your employees. Also, put yourself in their shoes and have a think about how you would like to be treated if you were in their position. If you are an employer, then that means you have to put your team’s needs above your own. I’m sure you have heard of the term ‘Make sure the team gets fed first before feeding yourself’. It is the sacrifice you make so that your business keeps running smoothly.
Most people will welcome the opportunity to discuss reduced working hours, reduced pay or even switching to contract work so that they can remain employed at your business. Talk to them, be transparent with them and discuss what options are available to retain them on the team. I wish my previous employer had given me the opportunity to talk things through with them. Don’t let what happened to me happen to your team members.
Ultimately, businesses that protect their team will emerge stronger from this crisis because they will be better positioned to take advantage of the opportunities post-crisis. For businesses who discard their employees at the first sign of trouble – you can be sure that those former employees are not going to come back and work for you when this crisis is over.
Should I start growing/promoting my business right now?
Sure, why not? There’s no reason to lock yourself up (even if you are literally in lock down) and hide from the whole wide world. The internet is still working and more businesses are moving their operations online. You can too. If you are looking at making capital investments in new assets or new commercial property – now is the best time to do it if you are in NZ. You can apply for government backed – loans, you can claim assets under $5,000 as an expense and you can depreciate commercial properties (bearing in mind that finding tenants might be difficult in this current climate)! I’m not sure what the situation is like in other countries but I’m sure that banks will have more favorable lending terms in the current economic climate.
Start engaging and networking with other businesses online. Join a local business networking group on social media. A bunch of us have started a small business innovation network group on Facebook aimed at self-promotion, cross-promotion and sharing ideas internationally – come and join us! Start blogging, making video content and hosting webinars. Thanks to the advances of modern technology, we can still remain connected with the rest of the world even if we need to physically distance ourselves from one another.
If you think you can afford to hire a new team member, go for it. Make sure that you have your forecasts and projections ready and sorted out – no point in hiring someone whom you don’t really need in a few months time.
The most important thing right now is to not give up and never lose hope. Keep promoting your business, keep attracting new clients to your business and keep pushing onwards! Like I’ve said before – you only fail when you don’t try.
Tomorrow we’ll look at some tips for individuals facing the recession!