Is it a ‘Need to’ or ‘knee jerk’ reaction?

Surviving a sudden financial crisis in your business.

As the recent problems surrounding the Covid-19 pandemic have demonstrated, it is simply not possible to allow for all eventualities in a business. Sometimes things happen that are beyond our control and beyond any reasonable expectations. We can do our best to allow for change, we can do everything in our power to create a buffer against the unexpected, but no matter how much we try, there is always a surprise around the corner. When that is a nasty surprise, all you can do is try to ride out the storm and keep your business on the best footing.

As of writing this article we are still in the midst of the Coronavirus ‘lockdown’ and we all trying to come to terms with what that means to us. However, we are now far enough into the situation that here at Northants Accounting, we are starting to get into the new routine of working and settle into some sort of ‘new normal’. Now the initial flurry of activity has stopped, we are beginning to realise that this is actually nothing new. Yes, this is an upheaval and we certainly don’t want to make it sound any less serious than it is, but although it was unexpected, the effects of the Coronavirus situation such as reduced income, less business, supply difficulties and so on, are not new. They are clearly happening on a wider scale than normal and that in itself is a new factor perhaps, but unexpected challenges facing a business are not a new thing. Changes and difficulties come along and we need to deal with them. Despite the size and impact of the current problem, it is still really just a challenge to be overcome.

Some strategies are proving to be, as they probably always were, the best response. So, here are some ‘bottom-line’ thoughts on dealing with the Covid-19 problem and indeed any sudden crisis in your business.

To start with, you cannot work out your future without knowing your present, so the first thing to do when you hit a problem is put the situation into perspective. A good place to start is with your workflow and sales pipe because the instant concern when there is an upset to your regular business is ‘where is the money going to come from?’. As far as your business cashflow goes what you can expect to invoice and what you could convert to a sale are often the key to finding an ongoing strategy. Grab a pen and use your CRM and accounts software to get a complete picture of what is going to be happening in the next few weeks. I would suggest you begin by looking at what is invoiced and what definitely will invoice in the short term. There are two good reasons for doing this. Firstly, it will define your immediate cashflow and, combined with what you have in reserve, it will give you a safe financial operating period. This is a clearly defined period in which to resolve your crisis. Secondly it will give you certainty and something positive to work with. Worry comes from uncertainty and worry is the spawning ground of bad decisions. Once you have this figure we know where we stand on fixed income.

Now move onto your sales pipe and forecast how much you can safely trust to come in as new business in the near future. Play safe, take the situation into account, but keep balanced. Try not to be over-optimistic or too doom laden. It is important to be realistic in a crisis so discard everything from your forecast that you are not at least 90% (preferably 100%) certain will come in. What you are doing here is producing a combined ‘hyper-safe’ number to work with. It is a firm value that you can use to accurately define how long you can safely stay operational in the very worst scenario. Usually, if you have a viable business already, this is longer than you think even if you need to tighten your belt a little. Once you have this you know with certainty how you stand.

It is now time to make a start on keeping things going. You need to focus on the actual problem not the fear surrounding the problem and that is difficult to do, so I suggest get a sounding board if possible. What I mean here is you need to be dispassionate and really critically assess the situation. The business is your baby. It is your pride and joy and you have poured everything into it for years, so it is very easy to become emotionally compromised and make bad choices. The crisis you are facing is something you will either overcome or, at some point, you may need to make the harsh decision that you simply cannot continue. In either case you need to identify what is your best option and that needs a calm mind and a clear head. Actually, preferably more than one clear head. If you have been using a business coach, then now is the time to really seek their input. If not, is there anyone who you trust to challenge you on your decisions to help you see things clearly? Avoid using friends and family as sounding boards if possible, they will want to focus on supporting you and not necessarily on doing the right thing for the business.

OK, so having looked at how long you can operate, let’s move on to how you can make a start on moving forward.

• Can you save money on premises? You probably went through your lease contract end to end when you signed on the dotted line, but it’s worth going back over it. Can you be released early from it, perhaps? If not, how well do you get along with your landlord? In the end they want you to remain in their building paying their rent. They may well be open to rent reductions for a short period or even a free period. From their point of view, it is much easier to hold on to a tenant than get a new one so negotiation now could well work in your favour. If you are in a multi-occupancy business centre could you downsize? Even assuming you cannot find a reduction in cost for the premises themselves it may still be cheaper to temporarily work from home and reduce how much you will be spending on heating and lighting etc. Try to reduce any regular costs where you can. You would be surprised how much businesses spend on luxuries and operating costs sometimes.

• Will you need to cut staff? This is often the root cause of bad operational decisions. Business owners tend to protect their staff beyond reasonable expectations. They will reduce their own takings to nothing, extend credit, avoid commitments and make many other mistakes to try to keep people on payroll. This is perfectly understandable but, in the end, staffing levels need to be a function of cost as well as loyalty. Maintaining a workforce is a delicate balance and one of the reasons we started with the exercise on fully understanding you safe income is so that you can make the call about reducing your team against the need to get back up and running when the crisis passes.

• Can you claim any assistance or get temporary financial help from other sources? If your business was viable in the past it probably will be again in the future, so that will work in your favour when looking for funding. In smaller businesses this could be as simple as looking at benefits to see you through personally. Perhaps a relative or friend could invest or help you out with a loan? There is no need to back away from these because, after all, without you there is no business in the future. There are always the usual sources such as the bank or other providers of financial solutions. In the case of the current Covid-19 situation for example, the government are in the midst of a series of packages to help out, so always keep up to date with developments in supported funding. Maybe it is time to consider the non-mainstream options such as angel funding, business development initiatives or similar? No matter what the size of your business it is important to make sure you fully aware of what is out there to help. Remember though these are decisions to make which must be relative to the viability of your business. We would always advise against taking on unnecessary debt.

• Maintain your professional and supplier support. Keep talking to your suppliers even if you cannot buy from them right now. Keeping the lines open means that you will be in their minds when things get better. Speak to them about extending terms if you need to and be honest about your situation. The chances are they will understand and want to help. The same is true of your professional support network.

• Look to support your own customers if they are in the same boat. Covid-19 is affecting everyone in some way. If you can convert a potential bad debt by perhaps agreeing to take a split payment or similar you will keep the customer, the income and the loyalty when things pick up again.

• Keep talking. Do not panic and drop your marketing. Reduce how much you outsource if you need to save the cost. Bring some of it in house if you have the time. Change who you talk to and how you reach out if needs be. Whatever you do though, keep talking. If you go quiet in a crisis people may assume that your business is no longer there.

Finally, the best piece of advice we can offer in this or any other crisis situation for your business is to make sure you are not responding with a knee jerk reaction. What seems like a desperate situation is unlikely to be resolved by guesswork or an ill-considered response. Slow down, take the time to critically think through the situation, and then make your plans based on the facts and the most likely scenarios. Explore your options fully and make sure you understand what they are. Where you don’t fully understand or feel like you cannot make the decision, turn to professionals and trusted advisors for input. While admittedly not every situation is survivable, at least you will have the comfort of knowing you made the right decision. In most cases though, there is a solution if you stay calm and look for it with a clear head.

Call us when you need us. We are here to help during the Covid-19 situation or any difficult time for your business.