It’s difficult to believe, but we’re now more than three months into the COVID-19 pandemic and it’s clear that the impact to businesses will be long lasting.
The impact across industry has been varied. Those businesses who rely on bringing people together have been extremely affected while we’ve seen others have the good fortune of growing during these uncertain times.
However, despite the impact, one thing that this pandemic has revealed is that the business community is resilient. It has been inspiring to watch businesses adapt to the changing environment, quickly shifting business and service delivery models. Pivoting this quickly is not easy. It requires leadership, a whole lot of courage, and a strong team behind the scenes to execute.
Despite these positive strides, business as we know it has changed.
- Offices are unlikely to return to full capacity.
- Kids are unlikely to return to a regular school schedule.
- Travel? Not until restrictions are lifted and people feel safe to cross borders.
- Supply? There is potential for more supply to be available than demand for services. Which ultimately could lead to downward pressure on prices.
- What does this mean for small businesses? It’s time to transition away from short term decision making and crisis management and to start planning for a world where the current state is your reality.
From a financial management perspective, we’re focusing on:
1. Cash and Debt Management:
The firms with the strongest balance sheet are the ones that will have the most flexibility. This is not the environment to keep putting cash in the business in anticipation of a brighter future, especially if that money is personally guaranteed. Credit risk is also a reality that most firm owners have not had to deal with in the past. Firm owners need to draw a line in the sand with respect to the personal exposure they can live with and make calculated and lasting moves to strengthen their balance sheet even if it means some uncomfortable decisions have to be made.
2. Planning and Forecasting:
Generally, we don’t advocate to do this monthly. It’s simply too time consuming for most small businesses and unless there is a material change to be planned for, updating once or twice a year should be sufficient. This is especially the case if you get good quality financial information from your finance team regularly. However, in a post COVID world, we do encourage firm owners to stay much closer to their short-term plan and pay close attention to all monthly variances. Are they timing differences? Or are they permanent differences? The impact on your bottom line could be dramatically different in those two scenarios. While you’ll want to maintain a healthy dose of optimism publicly, privately you’ll want to be objective and realistic when taking a future point of view.
3. Stabilizing Operations
Most firms have been operating in crisis management mode for the past few months. It’s time now to stabilize operations, instill confidence in teams, and begin predicting future trends. Government subsidies have allowed firms to buy time. But now, firms must make decisions about an uncertain future. These will be tough decisions, but they are the ones needed to restore the health of your business and set yourself up for success for the long term.