As I write, we are well into the recovery phase of the COVID-19 pandemic, and I am grateful for the fantastic weather we are having here in Perth. Last weekend I drove to my local beach and sat watching the surfers try to catch the few and little waves. I tried surfing….. once! I don’t know why I failed but I love watching those who have mastered this skill. As the wave starts to form, the surfer has to make a decision: will I ride this one or wait for the next? On the news that night was a piece about the first woman (a local from Gracetown) to successfully surf a wave so huge it has garnered the global reputation for being almost unsurfable. Although the size of the wave is different to my local beach, the skills required are the same. And I respect their skill as they ride the wave, then go back out for the next one.
As our community engages Phase 3 with Phase 4 of the recovery starting this weekend, our client businesses are starting to pick themselves up to get back into action. And I’m well aware that some clients have no business at all, while for others the virus has hardly affected them. What is the same is that COVID-19 affects everyone of us, as apart from the shocking death rate, its biggest impact is on the economy. Every business depends on the economy being confident and growing in order to be successful. Recently BDO published this picture of the three stages of this crisis as they impact on a business.
Survive – identify cash flow generation and other appropriate strategies and prepare a response plan and execute accordingly .
Strive – maintaining business continuity in the medium term, focusing on operating efficiencies, supply chain and workforce management and financial sustainability.
Thrive – with robust plans in place to manage key risks, revisit business strategies around sustainable growth in the post COVID-19 paradigm.
In professional service firms we have been reading almost daily news of stand downs, redundancies and salary cuts for all employees as they adjust to the new norm: the strive phase for their firms. Why is this so? The community is coming out of the pandemic, we are being told by Governments to take care, but to get back to work. And here are firms doing something contrary to this messaging.
If you read a little more deeply into the various announcements, the staffing cuts are happening in divisions of the firms in which they do not expect to see much work in the coming year: consulting and financial advisory services. What does that say to you and us in our respective businesses?
If you go back to the picture, these firms are in the strive phase: maintaining the basics of their business, while making operational efficiencies. Their workforce is their greatest cost, so if they can reduce that cost they can position their business for the Thrive phase. This is good, practical, and hard advice. So a few thoughts for you to consider:
- Reviewing your business now will help you to survive the longer term, no matter how long that will be, and we don’t know how long it will take to recover the economy. It’s a good time to review your business position and to develop a plan for the next year. In these uncertain times, we recommend setting an annual forecast, with an update every quarter to reflect the reality of the business conditions.
- A strategy I have found useful is to think about our business with a clean sheet of paper. If I were starting over how would I operate and what would I do? My approach is to identify the ideal business actions and then to compare my actual business and consider what changes to make. Applying this approach we introduced weekly cash flow and efficiency graphs in February and have found them to be helpful in plotting the way forward. As the economy enters the recovery phase, there will be many businesses that will continue to struggle with cash flow, particularly as the government stimulus packages come to an end. You may recall the Job Keeper program is to be reviewed by Government effective end June and the findings to be announced on 23 July. Our internal cash flow model now forecasts the effect on our business if the findings result in a reduction of eligible employers within our client base.
- Cash is King. Always. Look to preserve your cash holdings. There are a lot of tempting incentives to buy new equipment or take a holiday. Consider whether that cost is necessary…. will it add value to you or your business? Until our economy rebounds every business needs to preserve its cash to cover the uncertainties that will inevitably arise.
Now you may find my views a little negative. But as someone who has been in the accounting profession over the 1987 stock market crash, the 1990’s recession, the 2000 GST impact, the 2008 GFC and now the COVID-19 pandemic, the common factor in getting to the thrive phase is the ability to run a tight ship and to preserve cash. The decisions may be hard, but like the surfer looking for the next big wave, you need to judge the movement and pick the time for driving your self forward.
As always we are here to help. Please do contact us if this article causes you concerns or you would value an independent set of eyes on your business as you get that clean sheet of paper out of the drawer!