Reflections in Isolation
The COVID-19 lockdown may have afforded many business owners the opportunity to reflect on how they may have been better prepared to manage the crisis. It is likely that there will be a number of common threads evident, however it is certain that they will all be focused on the same goal of making the business more resilient and able to survive, revive or indeed thrive in the event of a major business disruption.
There has been significant disruption to businesses normal supply chains caused by the Covid-19 crisis. Some suppliers have not been able to supply goods or provide services to their customers due to restrictions, a shortage of labour or other issues within their supply chain.
Many businesses have been impacted by excess demand for specific items during the crisis including medical consumables (masks, gloves, hand sanitiser), electrical goods (laptops, monitors) and grocery items (toilet paper, flour, pasta).
Businesses will be forced to reconsider their supply chains with the objective of removing risk. For example, revisiting decisions such as ‘Make versus Buy’, planned inventory levels, the number of contracted suppliers (consolidated or dispersed) and the location of suppliers (onshore versus offshore).
Businesses will review their commercial agreements to ensure that they have been appropriately drafted to deal with Force Majeure events (unforeseeable circumstances that prevent fulfillment of a contract). This may be either the business supplying goods or services to customers or receiving goods or services from suppliers. It is not only important that there is a Force Majeure clause in the contract, but that the business owner understands their rights and obligations under the clause and the events that could trigger a Force Majeure.
Business Continuity Planning
Some business were very ill-equipped for a business disruption the magnitude of the COVID-19 crisis. Businesses should consider putting a business continuity plan in place to enable it to be enacted in the event of a future disaster. A business continuity plan will ensure the business will be able to continue to function with minimal disruption.
Also, businesses should review whether their key suppliers have business contingency plans in place. This will be a more critical factor in future sourcing decisions as a number of businesses previously had outsourced key functions to third party suppliers who did not have business continuity plans in place and have been forced to take back these functions at short notice due to disruption within the suppliers’ business.
A substantial number of small businesses have suffered a shortfall of cash during the COVID-19 crisis, often requiring injections of capital from owners. Businesses will consider implementing a minimum liquidity target (i.e. the minimum amount of cash to be available at any one time) with liquidity available from either cash accounts or lending facilities that are in place i.e. overdraft or line of credit facilities. The amount of cash held would be based upon the expected duration of a crisis and the anticipated net cash commitments over this period (although not many people could have predicted the extent of disruption caused by COVID-19).
Also, the adequacy of cashflow forecasting will be critically reviewed by businesses. The crisis has shown that businesses need to have a rigorous cashflow forecast in place to assist business owners to navigate any disruption to normal cashflow.
Many businesses discovered through the crisis that they had overly restrictive employment arrangements (e.g. leave arrangements, work from home policies, etc.). Post-crisis employers are likely to review these arrangements to ensure that they have the requisite flexibility within the workforce to be able to swiftly act in response to an adverse event. This may include implementing Work-From-Home (WFH) arrangements for staff. Many employers were caught short without a policy in place that would deal with employer health & safety obligations (not to mention adequate technology for staff to work remotely). Some employers may even reconsider their office rental after they find that workforce productivity did not materially decline with employees working from home.
It takes commitment to make relationships work. Therefore, businesses need to ensure that they focus on building and maintaining relationships with key business stakeholders (e.g. customers, suppliers, financiers) to ensure that they stand by your side in times of crisis. The CFO Centre has extensive relationships through a network of preferred business suppliers including lawyers, bankers, financiers, specialists, consultants, and advisors that are working with us and support businesses in challenging times.