Covid 19 – Good Business Practices will ensure your business has the best chance of navigating your way through
There have been many articles written on Covid 19 as well as news stories and there is no doubt we are in unprecedented times. Normally we can identify with a similar period with similar traits and tendencies and seek guidance from behaviors during that period, but not this time. What makes this unique is the speed at which the epidemic gained traction and the immediacy of the response required by business and governments. For me, however, the thing that makes this period the most unique was how everybody worldwide has been so compliant and supportive of the cause.
Whilst we are still in the period of shutdown and recovery, there is no doubt that when we come out of the Covid 19 epidemic, the economic recovery is going to take a lot longer. Many businesses that have been shutdown over this period will be effectively restarting, and for many in industries, such as the travel and entertainment industry, that will take some time. Unfortunately, the income they have lost during the epidemic cannot be recovered, and it will be a while before that sector returns to normal.
Whilst the past few weeks have been difficult for all businesses there are many that are still trading normally and have not experienced the same significant downturn. These businesses continue to monitor their markets but are hopeful they may have come through relatively unscathed. In some cases, there are opportunities that have arisen from the crisis that they may be well positioned to take advantage of.
With all these factors considered there are some key business practices that have assisted businesses to respond and make the most of a difficult situation. What has been required by the situation is constant monitoring and response. In the initial stages monitoring was required on a daily or sometimes twice daily basis because things were changing so quickly. Businesses were faced with the prospect of potential downturn in turnover of 50-70% overnight and having to redress costs that they no longer could sustain. Most of these costs were salaries and people so the decisions effected families and their livelihood. Other costs such as rent were locked into contracts.
The businesses who have best dealt with the situation are those who already had monitoring processes in place. This would typically involve weekly catch ups with the Leadership teams, monitoring key business metrics, review of monthly financials and having accurate cashflow forecasts. With these business practices in place, the business is in a much better position to respond quickly to a change in circumstances such as the current epidemic. Without this in place, businesses are starting from ground Xero – getting team together, developing rapport amongst the team, trying to understand the information available and working out what you need. In this epidemic you could be weeks late getting to the core of what actions you needed to take, and risk carrying costs for much longer than you should. Businesses with solid business practices will be ahead of the game.
A very good example is a business in Sydney NSW that the outsourced CFO is working with. We have put in place a weekly meeting to review previous week’s sales and margin with a monthly meeting to formally review Profit and Loss, Balance Sheet and Cashflow forecast. In the very first week the Virus became known we made a significant decision to cut costs to match the decline in volumes. The following week further announcements were made by our Prime Minister which impacted volumes further, and we responded with even deeper cost reductions. We communicated to staff and kept everyone informed. Within 2-3 weeks the business had identified and responded to a situation in a way which will probably see them survive when they otherwise may have not.
In order to be able to identify and respond in such a decisive manner, there were some key factors in place here. The Leadership already met regularly on a weekly basis, even if this were to say we had nothing to discuss. When Covid 19 became known, the team was already coherent and aligned with their thinking. The regular reviews of key metrics and the financials meant they were across their numbers. With the foundations in place they could reach consensus quickly and act decisively. As a result, costs were reduced at the earliest opportunity.
We talk about the current crises and planning a response but those businesses who already had good business practices and a coherent leadership team in place are in a much better position to respond. Being across the numbers and current performance means that a business understands its costs and how to scale to suit the situation. Up to this point, we are more commonly doing this with a view to scaling up, but recent developments being able to scale down is equally important. That means understanding your people their roles and the impact they have on your business. In many cases, scaling down in the current environment is reversing the impact of scaling up which can be easier to relate to.
As we recover and come out of this period, it is a good time to review your business practices and the mechanisms that you may have liked to have in place to help you successfully navigate through the crisis. Proper financial forecasts and a coherent team which meets regularly would be two critical areas that would differentiate the ability of businesses to be able to successfully navigate their way through the Covid 19. This is just good businesses practice which would help you grow and manage your business more effectively, which should be in place irrespective of a crisis. An outsourced CFO can be a good addition to the team to help put the right business practices in place and guide a business through this process.
ABOUT BRIAN DOUGHTY
Brian Doughty is founder of The Outsourced CFO which is a part time CFO service for small to medium sized businesses. Brian’s experience in large corporates and small business is unique and has enabled him to develop a simple to understand set of tools which will help business owners engage staff, monitor performance and achieve their goals. Contact us for more information, visit The Outsourced CFO