27 May 2020

The COVID-19 health pandemic is putting extreme pressure on small and medium businesses to survive. Most parts of the world are experiencing an unprecedented economic calamity. Many businesses will not make it, while others will endure.

Although some leaders may have some sort of crisis management plan, nothing could have prepared them for something this big. Most of the consequences are beyond anyone’s control, so the logical strategy for a business is to make the most what they can control, just to keep the business afloat.

How you lead your people matters now more than ever

This pandemic is a defining moment in everyone’s lives and careers. What your team needs the most now is composed, empathetic, informed and adaptive leadership. There needs to be a clear demonstration of care and diligence, good faith, proper use of information and proper use of power in the best interests of the company and its employees.

Discretionary expenses must be kept at a minimum

Businesses who are exposed to travel, entertainment, hospitality and discretionary retail will find it difficult to survive post a government-directed hibernation.

Those with high exposure to everyday needs, home delivery and essential services are more likely to survive.

Reduced reliance on manpower must be anticipated

With the world observing social distancing, businesses that rely on people to carry out services in close proximity to customers will find it difficult to survive, so they will need to devise a plan to retain some of the core services.  Meanwhile, businesses that do not rely on people delivering services, such as online platforms, are more likely to keep operating and generating cashflow.

Fixed costs

Businesses can survive by allocating the majority of expenses to variable costs. Moving full-time labour to contract or casual labour and moving fixed rent to a percentage rent of sales, will move expenses to variable and allows businesses to compress costs in line with revenue declines.

How well do you know your numbers?

Small debt, reliable debtors

Businesses with no or very low levels of debt are more likely to survive, particularly with debtors who will reliably pay invoices when due. Banks are expected to show some flexibility to worthwhile businesses, so you want to be able to suspend repayments and limit bad debts to save funds.

Strong cash reserves on the balance sheets

During this crisis, liquidity is key. Having cash reserves on your balance sheet will be crucial in maximising the chance of survival. This extra funds can be used to transfer costs from fixed to variable and support the business and stakeholders as revenues get disrupted.

It’s very likely that new business models will emerge because of this situation, and we will see more adaptive businesses with more variable costs, lower debt, and stronger balance sheets and with better risk management.

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