Tuesday, May 26, 2020

I HAVE A BUSINESS…WHAT DO I DO AFTER LOCK DOWN?


In the last seven weeks or so economic activity has come to a standstill as a result of the lockdown.

The restrictions and movement and congregation has meant businesses have been forced to shut down and the more vulnerable businesses, those in dying industries or carrying too much debt will not survive.

It will be brutal.

Tips gleaned from several businessmen and all over the place suggest this need not be the death knell for our businesses.

Here are some tips for businessmen to survive an even thrive when the lock down is lifted.

1. Call in the goodwill you have built, if any

The biggest problem for all businesses to begin with is working capital, in simple terms are you making enough money to pay off your day to day bills.

Revenues collapsed to zero or near zero in recent weeks, while liabilities – rent, salaries,  utilities continue to accumulate.

"No doubt you are going to have to take a panga to your costs to match this new reality. But that might not be practical all the time. 

Say for example you have a workforce of 10 people to run your shop, factory or whatever business you have and to service existing contracts you need all hands on deck, laying off people may not be wise, may even be detrimental to the long term health of your business.

This when the goodwill you built up over the years with your landlord, bankers, suppliers and even workers is going to come in handy.

The hard conversations have already begun. Can the bank allow you not only a restructuring of your debt but also a facility to improve your working capital? Can your landlord allow you to pay your rent arrears over a longer period of time? Can your suppliers give you goods on credit for longer periods than previoulsly? Can your workers take a pay cut, allow daily allowances rather than a pay check, unpaid leave or work longer hours for less pay?

What about your shareholders, can you go back to them and ask for more money. Based on the returns you have been giving them will this be like detoothing a leopard?

All these negotiations will depend on what your relationships have been like in the past. If you have accumulated enough good will, people will give you the benefit of doubt, trusting that you will make good somewhere down the line.

2. Cashflow is not everything, its the only thing

The say profit is an opinion, cash is fact. Given the challenegs outlined above you have to hit the ground running. Sales have to start happening on day one.

"The key to increasing sales is communication. Do people know you are even open for business? Do they know what you are selling? Do they know why they should buy for you?

Invest in improving the communication around your good and service. If no one knows about you, who will buy from you.

Good customer service before the lock down will ensure word of mouth endorsments. But that is not enough.

When things were good you did not need a marketing and advertising budget, now your survival may very well depend on it. This will what will drive revenues, bring in the cash that will improve your working capital position. 

3. Your people are your business

When things are good it i strue you may have become overstaffed. A lot of dead wood hanging around. So the temptation to look at payroll as the first way to start cutting costs is a tempting one.

But this should not be done in isolation of an understanding of your core business. The lady at the till may look like an easy target but her customer service (her smile?) maybe what brings in the paying customers. Removing low margin goods from the shelf may backfire because they are what draw the customers in to buy the high margin stuff. The administrative assistant may seem useless (we all type our own letters these days) but he maybe the one who holds everything together, allowing the rest on you to focus on the “important” stuff.

"Your people are the frontline of your business, you treat them shabbily they treat your customers shabbily  and that will be the end of your business...

4. Back to basics, the business gets paid first

When you are starting a business everybody – the supplier, the banker, the workers, gets paid before you, the owner gets paid.

As things got better you started earning more from the business. These are not normal times we are  literally back to square one. A mindset adjustment will be needed.

Chinese billionaire Jack Ma said in this year the purpose of every business will be to survive. Grandiose schemes of growth and expansion are secondary, at worst, will have to wait.

"Its back to basics facilitate sales through marketing, watch your costs  like a hawk, build up reserves by taking less out of the business, all the while maintaining a long term perspective. ..

5. If all else fails ....

In respect to that last observation this lockdown  has thrown up some painful home truths. 
Maybe you may have to consider a complete reorientation of the business, your business model doesn’t work anymore. 

You may have to attract new investors into the business, never mind its a business that has been  in the family for generations.

You may have to forgo that prime location for a cheaper  one to stay alive.

And if all else fails you may have to shut down the business, take your losses and look to other things....

This list is by no means exhaustive or in order of priority but it should offer some food for thought.

Clearly survival of the your business will depend on how well run it was before the lockdown. 

Secondly, how quickly you can face up to the new reality and respond effectively and efficiently.

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