Just about two month’s in, the business impact of the Coronavirus and the lockdown is being felt by many people and the plain fact is that this isn’t going away quickly.
You have two options:
- Do Nothing, Keep The Status Quo and Wait and See What Happens
- Go Back To Your Business Plan, Amend and Use It TO Win Through The Battle
In this blog, we want to take you through how you can use our ‘Business Journey Planning’ approach (as outlined on our website) to win through the battle and propel your business forward despite the crisis.
Step 1: Define Goal
Every business is different and your goals may be different. For some of you, it will be about regrouping and reshaping your offering, for others, it might be about upping your product output and for others it could be simply to survive.
- Let’s look at a goal of ‘survival’ for a moment as an example. We’ve heard mentioned that survival is ‘to have enough cash reserves to ensure that we can pay our monthly bills, expenses and wages on time’.
There are a few questions that we would further ask someone who gave us this as a goal:
- How much cash do I actually need to pay the monthly bills, wages and expenses on time? Be specific – own the information.
- To what timescale does the objective apply – is it for the next 3 months, 6 months, 12 months? What happens after this time period?
- Is it achievable? Do you believe in it? Do you have the right mindset?
If you have the right mindset, you will believe in it and know that is achievable with hard work, determination and by taking the right decisions. This is all about lessening the impact of the Coronavirus on your business and you can do it.
So let’s revise the above objective to be something similar to:
- For the next six months to have a minimum surplus of £5,000 in the bank after paying all your liabilities as they fall due and for the following six months to have a minimum surplus of £10,000 in the bank after paying all your liabilities as they fall due.
Ask yourself, is your goal ‘SMART’
- S: Specific ✓
- M: Measurable ✓
- A: Achievable ✓
- R: Relevant ✓
- T: Timely ✓
Okay that’s a start and we have our objective.
Step 2: Establish Your Position
We generally take for granted that we know our position but truly, do we?
- Do we know exactly how much cash we have and how long it will last for?
- Do we know the exact amounts and timings of our liabilities?
- Do we know the impact of the Coronavirus on our clients? How have they been affected by the crisis and do we know by how many days our customers may delay payment to us?
- Do we know what happens if our initial estimates are wrong? Do we know how much contingency we have to achieve our goal?
- Do we know how quickly we can generate cash from our assets – eg. Stock or work in progress?
- Do we know what happens to our cash flow when the government support stops or runs out?
- Do we know what happens when we have to repay our deferred self assessment tax or VAT payments in early 2021?
- Do we know what assumptions we should be making in our forecasts that will apply for the next 12 months?
It is crucial that no matter what size of business you are that you know your current cash and profitability positions. This is your starting point and will enable you to answer some of the above questions. You cannot answer all the questions at this stage.
Initially you need to answer the questions based on factual information – not guesswork.
Step 3: Prioritise Issues
Now we have established our position and we have the facts, we now need to look at prioritising our issues.
Normally for many businesses in the survival situation, it will mean preparing a detailed cash flow forecast with their accountant.
Initially we would recommend that this is a weekly cash flow for 13 weeks followed by a monthly cashflow for at least the following 9 months (ie. 12 months in total).
This will help you further with ‘Establishing Your Position’ and will also help to form the basis of what actions you may need to take to mitigate the impact of the Coronavirus.
Ask yourself when complete, without any further work, does your cash flow and therefore business meet the targets set in ‘Defining Your Goal’ of making sure the business has at least £5,000 per month in the bank for the first six months and £10,000 per month for the next six months after.
We can now measure this and the answer for you may be ‘Yes’ or it may be ‘No’ but you will be able to answer the question and so have clarity about the cash flow situation for your business.
Step 4: Plan Short Term – An Answer of ‘Yes’
You may think that if you can answer ‘Yes’ to the last question that you do not need to do anything. Well you may be one of the lucky ones who can then relax, do nothing further and hope that the assumptions in your cash flow forecast are correct and come true.
The reality is that things may change over time. If you are in this position, ask yourself ‘Did you expect at the end of February 2020 for us to be in this position at the end of April 2020?’
That’s how quickly matters can change and how significant these changes can be. It’s now your job to ensure that you are protected against these changes and that you can become quickly aware of their effect on your business and what decisions need to be taken for your business for the future?
To do this effectively, you must plan for ‘what if’ scenarios. For example:
- What happens if your clients take on average another 15 or 30 days to pay their invoices because their cash flow is affected by their customers?
- What happens to your cash flow if customers reduce their spend by 10%; 20% etc because your customers demand something different that you are not currently providing or because they have to save cost?
Therefore in this position, your short term position should be about identifying the key scenarios which you should review and understand what you would do in the event that they negatively affect your business so that you stay on track for your original goal.
Step 4: Plan Short Term – An Answer of ‘No’
For many, the answer to the last question of Step 3 will be ‘No’.
Believe it or not, you are ahead. You understand your current financial position and can ascertain how much the shortfall against your objective targets is. You can make decisions accordingly.
For some businesses, this may be making small changes. It could be reducing unnecessary (luxury) costs, taking advantage of government support including grants and payment deferrals or devoting time to credit control.
For other businesses, the changes may be more radical. You may have to look into funding through the Bounce Back Loans or Coronavirus Business Interruptions Loans set up to help your thought the impact of the Coronavirus. You also may have to look further into your business and go back to your original business plan and re-write it for what your customers will need and want in 2020. What can your business change now to affect positive results? Only after doing this will you be able to revisit your cashflow forecast and identify the expected position.
So now let’s assume we have made the changes to our business model, costs etc., you too need to go through the ‘what if’ scenarios to test how robust your business is. Your scenarios may be the same or different to others but the fact remains, the future is uncertain and therefore all business should be testing their forecast assumptions, robustness and effects of any unexpected changes.
Step 5: Plan Long Term
On some occasions the short term and long term planning overlap.
Our distinction is not necessarily always based on ‘time’ but we link the Short Term Plan to immediate actions that are required. What do you have to do now – within the next few days or month?
The quicker action is taking to address the immediate challenges, the quicker you will win through the battle.
Often the short term plan involves identifying ‘quick wins’. These are necessary but do not necessarily sustain the business for the longer term objectives. In our scenario, the short term goals may help us achieve the £5,000 monthly cash surplus target but not increase this to a surplus of £10,000 each month.
The longer term plan involves taking a step back and looking down on the business, on customers, on industry, on the economy and coming up with new ideas, improvements, efficiencies and understanding your key performance indicators for your business to be able to achieve it’s objectives.
Examples of the slightly longer term planning (and remember we are still in a short timeframe following the initial starting point) could be:
- Diversifying your service offerings and customer base;
- Improving your customer experience and providing additional value, eg. new products, new delivery methods, new geographical areas etc;;
- Utilising outsourcing to reduce costs and gain expertise; and
- Improve processes and use automation where applicable.
This is the time to think outside of the box and be creative. Remember, what will your customer want and need in 2020 and beyond? How will the impact of the Coronavirus effect their business model?
Step 6: Consider Technology
With all the steps, you should always be considering technology and how it may help and improve your business.
We have seen recently with many of us working from home that the great cloud based technologies have been used to deliver so much to us and enable communications.
As businesses return to the new ‘norm’ of working, technology will play an important part.
Let’s take our example with the cash flow forecast. Is it not true to say that it’s effectiveness will only be proven by the ability to keep it up to date, address any changes that occur and identify problems before they occur?
With the right solutions linked to your accounting software, this is possible is real time with minimal input from yourselves. A typical scenario would be to identify the impact of one of your larger customers saying that they can’t pay next Friday – it will be two weeks from Friday. A quick change of a date and instantly you have an updated cash flow prediction. It’s vital information and will help you succeed in your goal.
There are many other ways that you can use technology to improve your business and these should not be ignored as they are proven and tested and can help fight back against the impact of the Coronavirus.
Step 7: Safety Checks
With any forecast, it is a best estimate based on a series of assumptions. It is crucial that you check and update your forecasts, predictions, business impact etc. on a regular basis but at least weekly.
You should also update the forecasts on a rolling weekly basis so that the data is always relevant and timely so that you can make key business decisions.
Step 8: Take Action
Taking action is paramount during a changing business environment. Staying as you are is not an option and therefore taking informed decisions is very important.
Take four key steps:
- Decide: Make key decisions
- Implement: Implement your key decisions within your business and commit to them;
- Monitor: Monitor and review the impact of your decisions. Are they affecting your business in a positive way?
- Revise & Action: Based on the results of your monitoring, revise your plan and
By taking a planned approach, making the right decisions, taking action and reviewing the position will help you to focus on winning the battle and mitigating the impact of the Coronavirus.
If you need any support, please feel free to call us on 01438 532230 or email us at email@example.com. We are here for you and if we are not available, we will get back to you at the earliest opportunity. You are not alone. We are in this together. Together we will win through.