Becoming resilient: the top 6 things SMEs can do to deal with the fallout from Covid and Brexit
Pro-actions CEO Andy Linnett outlines his thinking on how business owner managers should best respond to the rapidly changing landscape
POSTED ON: Wednesday, October 21st, 2020
CATEGORIES: Business Strategy and Planning
Uncertainty seems to be about the only certainty these days. Much has been written of the catastrophic economic repercussions of Covid although our view is that the situation is somewhat more nuanced and depends a lot on your industry. Similarly dire predictions are often made about Brexit – again the impact is likely to be markedly different for different businesses and industries. It is, however, almost certainly the case that we will be operating in an environment where demand will be reduced and unemployment will be higher.
Quite what the ultimate impact and duration will be of the Covid recession when overlayed with Brexit (in whatever form it finally takes) is almost impossible to predict to the point where it is almost pointless to speculate. The only logical thing to do therefore is to prepare to meet and deal with the unexpected. If that sounds glib it’s not meant to – stay with me and I’ll explain.
Put another way: if someone told you that you were going to have to run a long race but the distance, start time, end time, terrain, weather and things you might meet on the way were all unknown you might reasonably conclude that you were facing a lot of uncertainties. But that wouldn’t stop you getting fit, buying spare trainers, back packs, energy drinks, torches – and carrying a big stick just in case. In other words: you’d prepare so as to be able to manage the widest possible range of scenarios – or what we call “building resilience”.
Notwithstanding the uncertainty around size, shape and duration, what surprises me is the amount of businesses that seem to be underestimating the likely size of the trouble incoming. In part this comes down to the government novocaine giving a false sense of security: Bounce Back loans, CBILS, furlough payments, VAT deferrals, grants and so on have – as intended – papered over a lot of ugly cracks. But the tricky bit is what happens around Q1 next year when the novocaine runs out, the deferred VAT quarters become payable, and businesses start to struggle to service debt and/or run out of headroom in their balance sheets for any more debt.
If the market intelligence we are reading plays out then a significant amount of small to medium-sized businesses simply won’t be here by the end of Quarter 1. Some reports suggest that 75% of small to medium-sized businesses will not survive beyond Quarter 1 of 2021 if their revenue decreases by 10 – 30%. This, whilst ugly, isn’t all that surprising when you consider the need to recover overheads and the impact of a 10-30% fall in revenue on the gross profit available to do that.
For the last few months my fellow business advisors and I have been at the coalface, helping to sort out the challenges our clients are facing over Covid. If there’s one thing we know for sure it’s that there are some concrete things that you can be doing to increase your business resilience. What follows are our top six things.
1- Think first and get a grip of the business
Probably the two most dangerous things you can do right now are at the extremes: either thinking it’ll all be fine and nothing needs to be done, or panicking and turning everything upside down without thinking it through.
The first thing to do is recognise that change is coming and it may not be pretty so we’ll need to batten down the hatches and run a tight ship. That starts with two things; firstly governance. Governance sounds dry but means making sure that you have the ability and structure to properly manage and control your business – this is absolutely crucial for a ‘wartime’ MD who must be able to run a tight ship and implement changes quickly. Getting regular board meetings set up is a really good way to make this start happening – without the structure and cadence of board meetings that force you to look at the business dispassionately it almost certainly never gets done. And that way lies trouble as you’ll be forever on the treadmill or, worse, falling off the wagon. Trust us, we know as it’s one of the most common failings we see and one of the easiest to put right.
2 – Strategy: get clear on what you want to do and how you’re going to do it
One of the first things that your board can set its mind to is defining (or confirming) your strategy. Generally, strategy ought to be reviewed once a year ahead of business planning and budgeting, but any major change should prompt a ‘strategic review’. It won’t surprise you to learn that our view is that staring down the double barrels of Covid and Brexit is a pretty good indicator that a strategic review wouldn’t be wasting anyone’s time.
So, to recap so far: we’ve put in some structure to help make sure we can run a tight ship and make changes quickly, and then gone on to clarify the direction that the ship should be sailing in. Put another way: we should now have some clarity about how to drive and where we’re headed.
3 – Get a good financial model of your business together
Next is to get a good financial model of your business sorted out. This means full cash, profit and solvency forecasting on the fly. Nothing fancy, but a good solid spreadsheet that can cope with ‘what if’ scenarios. Do we still make money if sales fall by 20%? How long can sales be depressed by 20% before we’re insolvent? How much expense do we need to cut to be able to survive on 20% less sales – and so on. Without a good financial model you will really struggle to answer those sorts of questions. Sometimes you might historically have got away without it, but the length and depth of what’s coming mean this is almost certainly too big to be able to guess.
This is another area that’s ‘easy when you know how’, and without it you really are flying blind to the point where it’s dangerous.
4 – Review your cost base strategically – and design your organisation accordingly
Cutting costs and designing organisations are two areas that should never be rushed into as both can go horribly wrong. If you’re not clear on your strategy and you can’t model what will happen to your financials under various scenarios, you don’t know which costs to cut, and whether you have cut enough or too much. The nightmare scenario is that you do an excellent job of cutting costs but to the point where the business can no longer function and therefore goes bust. If that last sentence sounds like it’s been exaggerated for comic effect I’m afraid it hasn’t – several of our coaches have helped put businesses back together after just such misadventures.
Again, it’s easily avoidable if you do the right things in the right order before getting stuck into costs and organisation design.
5 – Make sure you plan and execute your marketing scientifically
Marketing as a properly scientific and structured discipline is so often misunderstood. John Wanamaker’s famous quote that half of his advertising spend was wasted with the trouble being that he didn’t know which half is absolutely on the money here. There is no other area of business where you’d even think of saying “we’ll budget twice as much as we need and just hope it works”. We commonly see this happening with marketing and promotion activity and now is absolutely not the time to be wasting cash. Again, it comes down to having a structured process to help control it and make sure it’s properly thought through.
6 – Make sure your sales organisation is right for what you’re trying to do
Whilst marketing is the bigger brother of sales, there is still a huge amount to get right when it comes to making your sales force work effectively and efficiently. There is undoubtedly an additional risk here coming from changes in purchasing behaviour following Covid. If your sales force has always been heavily dependent on face-to-face selling for example, it may need to look quite different in terms of skills and people if you’re going to successfully pivot towards telephone selling and remote support. Basic managerial grip is also key here as there is no point in spending marketing money generating leads if your sales infrastructure is then haphazard about converting them.
The best business people in reading this will recognise the areas of shortfall and seek help and external perspective – and in our experience those will be the ones that survive and thrive. It’s a matter of choice and taking ownership of action.
So what happens next? Some will need help and do nothing. Some will need help but will procrastinate until it’s too late. Some will decide to have a go on their own but burn time and bandwidth doing it. Some will set aside two of the two thousand working hours in a year for a free session with us. It might well be the best two hours you ever spend.