COVID-19 business implications in the new era
Beyond the loss of life and the fear caused by the COVID-19 pandemic, businesses around the work have faced disruption at speed and scaled unprecedented in the modern era. Companies everywhere are not wrestling with the question of how to reach the next normal safely. It is so tough to write a deterministic return back to the business plan as there is a likelihood of a resurgence.
How can you avoid or minimize the COVID-19 business impact of a cash emergency? The pandemic has demonstrated the need for all organizations to be able to weather major unforeseen business disruption. Managing cash flow is every company’s challenge, every day, every year. Top management who keep a close eye on their daily activity and emerging industry trends can help reduce their business’s exposure to the chill of a cash crunch.
Demand suffers as customers cut business spending throughout the year. In the most affected sectors, the number of corporate layoffs and bankruptcies rises throughout 2020, feeding a self-reinforcing downward spiral in COVID-19.
Global slowdown affects companies acutely especially service sectors like aviation, travel, and tourism. In an increasingly competitive world, you need to be alert. Returning to pre-crisis times is a muscle that needs to be exercised, not a plan to be executed at once. We need to go to more specific considerations, like making big moves fast and efficiently. Companies across industries need to get to that point where we are driving both better service to customers and also not increasing cost and affecting our cash liquidity.
This could be a great opportunity for us to step back and reflect on the kind of lives we want to lead in the future… Trying something new and not giving up on hard things.
I don’t know about you, but I feel like I am training for a marathon with this COVID-19 pandemic. I have actually run a handful of marathons in years past. The weeks we are right now would be called the messy middle of marathon training, when you have to wake up again and go through the motions of running routine with seemingly no progress. There are feelings of uncertainty, fear, crisis, friction, and ambiguity. The ticket to business success and endurance in training for a marathon is persistence. Grit. Hope. Innovation.
The reality is harsh. Ever since the COVID-19 crisis hit the town, our stocks, our bank accounts, and even jobs have been taking an even bigger hit. If you are the CEO driving on the road, Congratulations- You have more control of your money.
However, you are also in for a lot of work as well.
The biggest uncertainty for supply chain business managers and production heads is customer demand. The unpredictability depending on the kinds of products and services will mean confusing signals moving on…
You are right. We are in the turbulent COVID-19 times now. Essential goods like medical equipment and suppliers and pharmaceuticals have always been in high demand as they are needed in great quantities. The market is unpredictable. Now is the best time to be both tactical and strategic in your next moves to improve and increase cash flow and increase profit. In our experience, the following guidelines can help businesses of all kinds, for you to pick and apply to what suits you the best during the aftermaths of the COVID-19 Outbreak.
My clients have been working with me, had gone into a great business discussion on how they could get their companies into tip-top form at this point in time. It has been a long way before we get back to where we were before the virus hit.
“We need to face this positively. There is always a way to everything.” I assured them.
Think from your customers’ perspective
Think about your clients and their current business situations. What caused the business problem? Economy slowdown results in customers stretching out their payables. Prepayments and overdue settlement take place for customers to take advantage of special business discounts that can reduce cash at their end. What could be acceptable to them would be at our advantage.
How can you cope? If cash on hand is not robust, let the special discounts go. It’s usually more cost-effective to pass on a discount than to borrow to overcome a shortfall. Keep up on the business news. In order to minimize working capital requirements during challenging times, it is important to apply a coordinated approach that addresses all three elements of supply chain working capital- payables, receivables, and inventory.
Creative in Supply Chain
Given the importance of cash flow in times like this, companies should immediately develop a treasury plan for cash management as part of their overall treasury plan for cash management as part of their business risk and continuity plan. It is essential to take a full ecosystem and end to end supply chain perspective as the approaches you take to manage cash will have implications for now only your business but also for your customers.
Supply chain management is a complex challenge and finance-related problems only add to the risk. If you hear about any threatened COVID-19 disruptions to your supply chain, make sure you have a back-up position. Even if temporarily more expensive, it can save your business by showing your customers your reliability and versatility in challenging times. If your customers are in industries facing hard economic times, keep closer tabs on your credit policies, and be active in collections. If necessary, tighten credit terms, but use discretion. Being firm but supportive to your customers will go a long way in keeping them in the fold while still giving you better cash flow. Negotiate extended payments if cash gets short.
Stay close to your customers- Customer behavior is an unknown. Companies that navigate business disruption succeed as they invest in their core customer segments and anticipate their behaviors. Customers’ changing preferences are not likely to go back to pre-outbreak norms. Think about different ways in which you can deliver your service via online platforms, Most importantly, document both the signals of problems and your solutions. That way, if the signals happen again, you can refer to prior successful action as the first possible solution. We need to reevaluate the geography of the supply chain down to the specific cost component and route to the place where there is a low cost.
Imagine possible, but normally unpredictable cash flow challenges. Some problems can’t be anticipated, so “what if” business scenarios can be created. You don’t have to get elaborate, but you can ask what would happen if there were a flood, or, as we’ve experienced more recently, a devastating hurricane. What then? Other problems, such as “product sabotage” can only be dealt with as they occur. Constructing possible scenarios to reduce risks associated with “unforeseeable” problems is an important management tool. Learn from, and document, each experience, or you may have to repeat it.
Look at your sales business. Any prolonged (and “prolonged” computes differently for each company and industry) drop in sales without a comparable and simultaneously emerging reduction in expenses is a prescription for trouble. Of course, there is usually some lag between sales changes and a compensating contraction in expenses, but an early diagnosis can reduce the negative impacts significantly. Once a changing trend has been identified, act promptly or the impact of the lag will be more severe.
Don’t assume the resources in your business will still stay and be available at all times. Undertake scenario planning to better understand how much cash you would need and for how long. Reducing your variable cost is often a quicker way to immediately reduce your cash outflows than focusing on your fixed cost. Imposing travel bans and non-essential expenditures might be a way to manage employees’ safety.
Focus on high impact actions- which actions are best for the business? That would differ by the company but may include technology-enabled processes that can cut down costs in the long term.
Monitor and Evaluate
Efficient and timely decision processes allow organizations to cut the red tape and management layers that led to slow and reactive business choices. Businesses need to define scenarios tailored to the business’s context. For critical business variables that affect revenue and cost, they can define input numbers through expert input. Companies should model their financials and identify triggers that may significantly impair liquidity, especially in the current COVID-19 crisis. Ongoing business operations cannot be supported by sales, either more sales are needed, fewer expenses must be incurred or a combination of the two is in order.
Resilient businesses identified their critical processes and developed backup plans to ensure they are on track at all times. While this sounds very simple, all too many companies hesitate “in hopeful anticipation.” If remedies are not introduced on a timely basis, a severe cash crunch could follow. We can help in such cases.
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Fourth, keep a close eye on new product development. In many companies, R&D expenditures for new products are often allowed far greater business variance from projected budgets than normal expenditures. After all, when you create something new, it is really hard to accurately predict business costs — or turnaround time — at the outset.
It is unclear whether once the pandemic recedes, these customers will return to their old ways or if the COVID-19 pandemic will create new types of consumers. Given these and other uncertainties and the need for experimentation and fast learning to navigate through them effectively, the next step to the response of business has to be open-ended. A new mental model being the business based ability to absorb uncertainty and incorporate lessons into the operating models quickly to twitch plans and decisions.
Many companies are trying to hang on until the full reopening with a vaccine. They are probably now configuring their resources to be ready by then. That is risky.