Scott Cairns is the managing director at Creation Business Consultants, a structuring and advisory services firm based in the UAE
An unexpected crisis can be a huge blow, especially if you haven’t planned for adverse market conditions. It’s natural to go into survival mode, doing what you can to stay afloat, but then it becomes about existing rather than thriving. Webster’s Dictionary defines existence as living “at an inferior level or under adverse circumstances”, and the problem with an existence stance is that once conditions improve, you’re unlikely to be in a position to capitalise on the growth.
What’s more, you run the risk of diminishing your cash supplies until the only options available are being bought out by a more powerful entity or being forced to close. Instead, the aim of surviving a crisis should be to emerge stronger and more resilient.
So, what can you do to get through the immediate challenges and secure your position for long-term prosperity? The answer is planning. One of the fundamental pillars of any business should be a comprehensive business strategy, and you need to revisit these core areas:
- Cashflow Forecasting
Create extended forecasts for a broader picture
The old “cash is king” adage never rang truer than now when cashflow management should be your top priority. The first step is to construct a forecast. While a 12-week cashflow forecast is the norm (anything longer becomes more of a guesstimate), given the level of uncertainty at the moment, we would recommend running a cashflow forecast until at least the end of 2020.
- Cashflow Management
Balance cashflow constraints with commercial operational needs
Once the forecast is prepared, you can determine essential versus non-essential spending, and make swift decisions to pare back the non-essential as quickly as possible. You also need to manage the essential spending by taking informed decisions. We’re hearing of many companies decreasing salaries, making redundancies, closing and consolidating divisions, etc. but the best advice when it comes to examining staff costs is to tread carefully.
Staff members are the lifeblood of most businesses and redundancies should be a last resort. Re-arranging work hours and pay levels is the first step and a potential decrease in salary can be modeled in the forecast to see the impact on your short and long-term cash position.
Aim to retain enough human capital to offer an adequate service level to clients during the challenging times, while keeping an eye on the future. When things improve, you want your staff to hit the ground running and respond to a rapid increase in output, rather than going through a lengthy hiring and training process.
- Supplier Negotiation
Try to be fair, not right
You’re likely to be looking for extended credit terms, payment terms, and discounts from suppliers. Now is a good time to have these open discussions, but again consider the future impact. If you push too hard for a quick win, it can damage your long-term relationship and jeopardise the goodwill you have previously earned. You’ll need to work with these companies in the future; people remember those who helped them and treated them fairly when times were tough.
- Customer Negotiation
Offer added value with mutually beneficial terms
If you’re asking your suppliers for discounts, don’t be surprised when your customers come looking for the same help. Try to see it as an opportunity rather than a loss of cashflow or revenue and use your negotiation skills to find a mutually beneficial solution. One of the worst things you can do is instantly offer a massive discount in price, just because a client asks for it. Instead, look at options to maintain the sale value as much as possible, but consider including some complimentary services. Or a manageable discount combined with a longer minimum contract period. Everything is on the table, so come up with creative ways to offer extra value to your clients, as well as keeping your cashflow healthy and securing longer customer agreements.
- Re-evaluate Operations
The old way isn’t necessarily the best
This worldwide experiment is proof that people and businesses can adapt and operate in circumstances they never imagined possible. Now is a great time to analyse whether the old way of doing business was actually the most efficient. For example, remote working can reduce short-term costs and large office overheads, as well as attracting valuable talent that can’t manage the usual 9 to 5 office attendance (think stay-at-home parents with an amazing skill set that have a lot to offer).
Don’t keep all of your expertise in-house
The benefits of outsourcing your back-office functions will be immediately visible on your cashflow forecast. Consider if certain tasks, such as accounting, payroll, public relations services, and human resources/legal support, can be outsourced to other providers. This means that the quality of work can be easily maintained as you’ll be dealing with skilled professionals who are dedicated to providing these services, but you can still see a cost-saving when there is a slowdown.
So, with all the preceding advice in mind, it is extremely important to consider the long-term ramifications of your short-term decisions. Now isn’t the time to save a few hundred dollars on consulting fees, only to find yourself battling lawsuits for breach of contract in the coming months. Make sure all the steps you take have a solid professional basis to keep you in a strongly defensible position moving forward.