Mar 27, 2020 | Change, Leadership
As we hesitantly, with stumbles, come out of this lockdown, we will see the landscape has changed. For some, it will be a land of opportunity, for others, a wasteland.
Rather than seeing it as a calamity, those who choose to see it as an opportunity, will be able to look and see that what has actually happened is that the lockdown has dramatically accelerated many trends that were already slowly impacting on our lives. They were all evident before to those who were looking, now they are in ample evidence to everyone who is not completely blind.
The more obvious ones, are:
‘Digitisation’.
So called digitisation has taken off, whatever digitisation means in your context. Suddenly ‘digital’ is the new normal. From remote control of factories to grannies interacting with their grandchildren via Zoom, nobody has been immune.
Remote work
Working from home, cafes, the car, has been developing for a decade. Suddenly, it has been accepted as an alternative to expensive office space in central locations. What will probably evolve is some combination of decentralised ‘meeting places’ and working from home, serviced offices, and cafes. The trend has been pushed along a decade in 5 months.
Retail delivery services.
Similarly, delivery services have been pushed ahead a decade. Everything from the local restaurant to the supermarket, and department store now must be geared up to deliver or lose the sale. This will change the nature of retail from transactional to more ‘showrooming’, a trend harnessed by Apple a decade ago while everyone else was cutting retail prices and locations to save money.
The end of ‘purpose’ marketing.
The focus of marketing, at least by corporate marketers, will have pivoted from the banality of the ‘purpose driven’ marketing of the last few years. In the absence of a compelling idea, marketers deluded themselves that people really cared about their empty statements of ‘purpose’. Your potential and current customers will be demanding evidence that the statements carry weight in the behaviour of those seeking their money.
Politics.
Politicians have had a huge wakeup call. We voters really hate the division and spite of the practise of politics as usual pre corona. We long for some evidence that those elected to lead, do so, rather than just taking the trappings of office for their own benefits. The pressures on politicians and the political orthodoxy that has dominated to date will have to be revised. The basic assumptions about what services government provides, and from who and how, the necessary funds are raised to pay for them, have moved.
Not since 1939 have our politicians been confronted with the profoundly difficult choices that now face. I wonder if they are up to the challenge?
The economy.
The economy has suffered a major stroke, one for which substantial rehab over a long period will be required. It would be naive to believe it will recover to look much like the pre stroke version, but recover it will, over time. For those willing and able to push the boundaries, there will be opportunity everywhere, from the remaking of supply chains, to the potential of rebirth of sophisticated niche manufacturing, and new export markets. Digitisation of just about everything that has been accelerated massively, will demand investment and different business models and enterprise capabilities. These will offer great opportunity as well as what for many will be a terminal challenge. None of this will be easy, but it will happen.
As we ‘wake up’ from the corona coma, there will be an inclination to revert to the known, and comfortable. Succumbing to that urge will be a mistake, as we have all been forced to move on, to push the edges of our comfort zones. The economic and social climate has changed dramatically, and those that seek the comfort of the Pre-Corona status quo will find themselves isolated and falling behind their competitors.
Picking your way through all this will take effort, experience, and careful planning. When you need the injection of those skills, give me a call.
Mar 25, 2020 | Governance, Management
Five essentials for SME’s to survive the Corona chaos.
It is too easy for those not at the front lines of a crisis to brush aside the practical difficulties of day to day survival, in favour of the fluffier, albeit no less important longer term questions and issues.
Currently there is a flurry of activity from political leaders, roused from their partisan politics by this virus, resulting in a raft of measures that is challenging for owners of SME’s to understand, and access. However, it is essential that your spend the time, in a rational way, to understand the measures that will impact your business, what the qualification guidelines are, and how the assistance is to be accessed.
Many businesses are fighting for survival in the face of that Black Corona Swan that flew in and crapped all over them.
The five things business owners should be doing today.
Cash flow forecast.
Cash is the oxygen of business, survival without it is impossible. Having a clear view of the cash coming in, and going out over the immediate future is vital to making informed decisions. I always favour a weekly rolling 13 week forecast in most circumstances, and certainly in this one. There are plenty of tools out there, but a simple spreadsheet, filled with the input of your debtors and creditors ledgers, along with the bank reconciliation and a sales forecast will give the answers you need.
Do it now!
Cash ‘runway’.
You need to know how long your cash reserves will last in the event that you are suddenly trading at a loss, which is broadly illegal. This calculation goes hand in hand with the cash flow forecast, but requires you to break costs up into fixed and variable components. Those who regularly review their Break Even will have this information to hand. The provisions in the Corporations Act that refer to the personal liability of Directors who allow trading at a loss to continue, will be altered to accommodate the Corona virus, according to the PM’s March 22 statement. As yet I have seen no detail about this change, so be wary.
Communicate, communicate, communicate. Talk to major customers and those prospects that were about to be converted, to understand how their businesses are being impacted, and what you might be able to do to assist them. Talk to your staff, include them in the decisions around how best to preserve the business so that there is a job there when things recover. Taking holiday leave, unpaid leave, long service, job sharing, all may play a role. When you as the boss are getting really tired of having the same conversation, over and over, you might just be getting to the point where you are being heard.
Government assistance.
Both state and federal governments are setting out, with it seems common dual objectives, for the measures put in place, which are still evolving.
- Provide assistance to those whose employment dissolves. This includes a specific Corona income supplement, the ability to draw down on superannuation accounts, reduction of social security deeming rates, and direct payments to households.
- Provide assistance to businesses to keep employees working. This is the crucial one, as it is businesses that will provide the impetus for recovery. From April 28, the government is providing up to a maximum of $100,000 to be used to cover overheads, and keep staff. There is also included in the second package, a payment equal to the withholding tax on wages and salaries, of up to $50,000. The government has also put in place a specific Corona virus assistance scheme to assist access to working capital, by guaranteeing 50% of new loans by banks to eligible SME’s. To fund this measure, the Reserve bank has announced a lending facility to the financial institutions that will reduce the costs to those institutions of lending to SME’s. The states and territories have all weighed in with measures that relate to businesses operating in their states. Ignoring the stupidity of the federated system that results in an inconsistent patchwork of regulations, resulting in complication and confusion, you should investigate the specifics, and understand how you will be effected. In NSW for example, the government has announced they will waive payroll tax, and will being forward planned reductions in that awful tax on employment.
Be of service.
These are tough times, that induce a sense of desperation, which too often ends up being seen by others as the ‘hard sell’. This is the wrong time to be seen that way. Instead, set out to be of service, to use your resources to help mitigate the impact on others. They will respond positively, and remember. This does not mean you do not sell, obviously, but it does mean you do so only with the best interests of the buyer at heart, not your own. And, for heavens sake, stop those silly brand managers sending out those patronising ‘Covid-19 measures for your safety’ emails to anyone and everyone whose email address they collected in some way over the last decade. We do not want to hear from you, but will remember you clogged up our inboxes at a vital time when things get better.
It is a lot, on top of the day to day battle for survival, but spending your time wisely, on the things that will make a difference, is the best investment you could make at this time.
Header photo credit: David Brim, davidbrim.com
Mar 23, 2020 | Change, Governance
A Corona, heavily disguised as a Black Swan
There is a quote by Earnest Hemingway, when asked how he went bankrupt. His response was: ‘Gradually, then suddenly’.
The same thing is happening to us now, as the Corona bug cuts a swathe through economies worldwide.
For the last 25 years we have become interconnected and interdependent, as individuals, businesses and economies. This added to the stability of the system as a whole, and while all goes well, in the absence of some black swan event, we continue to slowly dig deeper into interconnectivity.
Along comes the black swan, and all that interconnectedness and interdependence pivots in an instant, from being a source of stability and certainty, to the catalyst that suddenly brings the whole system crashing down.
Imagine a group of climbers on a rock face. They are all roped together so that if one falls, the others are strong enough to hold him, and allow him to recover back onto the rock face. That is the case almost always, it is why climbers rope themselves together, as it reduces the risk to the individual. However, if the system fails, a vital piton pulls out, or a holding rope breaks, momentum builds almost instantly, and the whole group falls. The risk to the individual is lessened dramatically by the presence of the ropes, however, if the black swan flies in, the group falls.
It seems Corona is our black swan.
In Australia we have had consistent growth since late 1991, 28 and a bit years. In that time we have hollowed out manufacturing, sold off public and private assets, more often than not to international groups, embraced the ‘gig’ economy of casual and short term employment, and forgotten how to think strategically and for the benefit of the group. In its place, we have lauded individuality, immediate gratification, and the expectation of something for nothing.
It seems we are now about to pay a high price.
The rope has come loose from the rock face.
I wrote an article last weekend for an industry forum, expecting it to be published on Monday or Tuesday after the editor had a look at it and got organised. The pressure of ‘The bug’ got in the way, and it was not published, but I just had a look at the draft, just 7 days later, and it is out of date.
7 days, and some of the observations and predictions I made have been passed by events, predictions just a few days old have become utterly redundant.
That is how quickly this thing is moving, and we are struggling to curb its momentum.
Header photo courtesy Simon Murray.
Mar 22, 2020 | Governance, Management
Cash flow assistance for SME’s
Halleluiah
The Government has announced cash flow assistance for small businesses, turnover limit an arbitrary $50 million, impacted by the Corona virus.
Perhaps the precarious position many small businesses are finding themselves in has finally pricked the Canberra political bubble.
The assistance is intended to keep people at work, and therefore money flowing in the economy. Some of the details are in a fact sheet easily downloaded from the Treasury website. If unsure, speak to your accountant.
Industry organisations, particularly banks will play a role in ensuring the information gets out, and those eligible, are helped to make the appropriate applications.
Inevitably however, the devil will be in the detail. Governments being what they are, will without necessarily intending to do so, make it challenging to access the relief.
There will be layers of bureaucracy and miles of red tape to be navigated.
I have one piece of advice to give that might serve to reduce the disruption and stress any interaction with a government agency giving out money and assistance will create:
Start collecting the data you will need now!
Add a category to your ledgers, that captures each and every expense associated with the Corona virus. Direct costs are easily assembled, but put them in one place, and include a calculation that reflects the time people spend sorting through the debris of their employers caused by this blight. Use the total cost of employment X hours spent as the calculating base.
Assembling and reporting the numbers is something that will inevitably have to be done, so do it now, and do it in a disciplined manner, so that when the rush is on nothing gets missed, and having it organised will make the process of accessing the assistance less disruptive.
Header cartoon courtesy Tom Gauld.
Mar 20, 2020 | Governance, Management
The only commercial vaccine for COVID-19. Cash.
When things suddenly get really tough, as we are now seeing, the priority is survival.
That simple word means many different things to different people, but the common denominator is that you need cash to do it.
If your processes do not include short term rolling cash flow forecasting, the best time to start was before the do do hit the fan. The second best time is right now. There are many templates out there, but the information required is simple:
A forecast of the cash coming in.
A forecast of the cash going out.
This is not a managed number like a profit and loss statement, it involves only what goes in and out of the bank account.
My preference for most circumstances is a 13 week rolling weekly forecast. It is long enough to give a good picture, short enough to be sensitive to the immediate challenges that arise.
As a sibling to cash flow forecasting and a little more complex, is an exercise to ‘stress test’ your business. It is in effect a model to enable you to test to see how long your cash will last given a variety of assumptions about the trading environment.
To do a stress test, you need 8 pieces of added information, some will be forecasts, others will be sourced from your trading history, captured in the P&L and ledger accounts. The importance of each will vary depending on the type of business you are in. For example, physical inventories in a service business do not exist, but there will be a work in progress number that can take its place.
Projected revenues
Margins
Fixed costs
Variable cost of goods sold
Accounts receivable
Accounts payable
Inventories.
Cash reserves and available lines of credit
You can make this a sophisticated and challenging exercise, and in a large business, it should be. However, in an SME, it should be simple enough that a competent bookkeeper will be able to create a simple spreadsheet that will reflect the impact on your cash reserves of changing assumptions about any of the variables. Even just the conversation about the weighting of variables going into the stress test model, and their underpinning assumptions, will be extremely valuable.
When you could do with an experienced outsiders input, give me a call.
Header cartoon courtesy Scott Adams and ‘Dilbert’
