COVID-19 changed everything for New Zealand businesses. With the economic shock of the lockdown and the uncertainty that hangs over the coming months, business owners and shareholders must be proactive and smart to guide their businesses back to prosperity. Below, the Business Recovery team at BDO Manawatu explores some of the key elements of business recovery planning in the wake of an unforeseen pandemic.
During times of adversity, we’re forced to think outside the box and reinvent how we manage our business. Now is the time to make productive changes. You can reinvent your business using any of the following methods:
- Innovate – Innovation could be doing something completely different with your business, like offering a new product or service. For example, Bay of Plenty entrepreneur Nick Bartlett had to innovate when New Zealand’s strict border controls impacted his travel pillow business, so he re-directed his business to produce and distribute hair clippers for Kiwis. People often start businesses because they’re passionate about what they do or what they offer, but successful businesses thrive because they understand what the market needs.
- Re-engineer – Change and improve the design of your existing products or systems. Use what you have to produce something different or elevate what you already offer. For example, the New Zealand Beer Company used their mastery of alcohol to re-engineer their factories and create their own hand sanitiser. Formula1 teams, with races on hold, put their engineers to work creating ventilators instead of engines. These are just a few of the many ways that your business’s existing infrastructure can be used to meet the needs of the moment.
- Adapt – Reconsider how you deliver your products or services based on how your customers’ lives and your available delivery methods have been affected. How do we change to suit this new environment? During lockdown, for example, many salons offered online skincare consultations when customers bought home skincare products online. Your customers’ needs will have changed. Your current offerings may still offer value to them, but how you package them could be your biggest obstacle.
- Widen your lane – Broaden your line-up of products or services. A café, for example, could expand from cabinet food and coffee to ready-made meals, box-made treats, or ingredient bundles. If you can diversify the combinations of what is already in your wheelhouse, you cast a wider net for potential customers.
These innovations can continue beyond the immediate changes of the pandemic, but our vision must become more short-term in such challenging times.
Set your personal budget
As you hear at the start of any flight, always put your own oxygen mask on first. The same goes for your business. You should not be a slave to your business. Put on your shareholder or owner hat and define what you need from it. Can you make acceptable changes to your savings and personal spending that will reduce the cash flow strain on your business?
Update your personal budget with a template so you don’t miss any expenses and look at your bank statements online to see what you typically spend in a month. Be realistic. Your budget will only work if you’re honest with yourself. Look back before lockdown to paint a more accurate portrait of your usual spending habits.
Set your business budget
Do your business budget second, so you know what it must achieve to meet your personal needs. You likely completed a business budget at the start of the year, but the events of 2020 would have rendered that budget obsolete. You will need to work out the increase in cash that you need to achieve this year, beginning by determining how much cash you need to earn and working towards your existing gross revenue and profits.
Your revised business budget should consider the following:
- Determine the increase in cash that you want to achieve for the year.
- Factor in other cash movements, like reducing debtors, stock, or work-in-progress levels, or negotiating better deals with your suppliers.
- Consider your loans, allowing for principal repayments. If you had negotiated a loan holiday with your bank, you need to factor in the inevitable conclusion of that holiday and the resumption of those loan payments.
- Asset purchases and sales need to be considered. Consider selling obsolete assets to free up that cash.
- Remember your personal budget and what you need from your business to maintain your lifestyle.
- Work out your tax. Even though the government has provided substantial relief to businesses struggling to pay their taxes, some tax will still be owed.
- Have a look at your overheads to see where savings can be made. However, be careful not to rush into any major changes to your premises.
- Work out the level of sales you’ll need to produce the gross revenue your business needs.
Defining opportunities, vulnerabilities, & challenges
Once you’ve worked through the above facets of your budget, you should try to identify the most promising opportunities available to you to meet your goals. Some major opportunities could be working more online, redefining roles within the business, re-evaluating your premises (again, err on the side of caution here), pursuing new lines of revenue, acquiring new businesses, or implementing new technology. Leave no stone unturned.
Next, what are the biggest vulnerabilities in your business right now? Insufficient cash flow, demand, and poor debtor management are common culprits. It’s important to consider the people you deal with (your customers) and their businesses. If your clients’ businesses are struggling, this will impact you. Identifying vulnerabilities empowers you to put in place a plan to overcome them. You need to be brutally honest in your assessment. A rosy plan won’t help you.
Finally, designate two to three critical challenges, like a decision to sell or liquidate part of the business, establish a needed online sales platform, or secure finance to trade through the recovery. Some of these challenges can be more ambitious than others but remember that you don’t have to do this on your own. The business recovery team at BDO continues to work with thousands of businesses across New Zealand to help them find their way back to prosperity.
Examine your risks
Do a careful analysis of the risks in your business by completing a risk register, which identifies the likelihood of each risk and the severity of the consequences of not mitigating those risks. Risks fall into ten categories:
- Governance – Poor planning, lack of up-to-date policy, poor discipline around working on the business
- Leadership – Communication, reporting, and team morale
- Products & services – Lack of adaptation or innovation
- Operational – Suppliers and supply chain contracts and key customers
- Marketing – Poor ROI or overspending, or a lack of digital presence
- Sales – Lack of an e-commerce platform, overselling, or poor training
- Finance – Undercapitalisation, cash flow limitations, poor credit control, debtor management, or lack of forecasting and financial reporting
- HR – Overspending or poorly managed restructuring, grievances (don’t ignore normal HR practices when times are tough)
- Admin – Lack of automation
- Technology – Poor adaptation of software or apps
Goals, actions, and responsibilities
Your business recovery plan will be much more detailed than a conventional business plan. You’ll need to get into the details of every department. Goals need to be smart, i.e., Specific, Measurable, Attainable, Relevant, and Time-bound. Actions need to be assigned to someone to be responsible for them. They need to be reviewed regularly to check progress. We recommend that they are reviewed monthly because short-term planning is what will get you through right now.
Pulling everything together as a complete package
Your personal budget, risk register, business recovery plan, business forecast, organisation chart, and/or finance application(s) should be combined to form a complete business recovery package. This might sound like a lot of work, but you won’t need to do this all at once. You may have sufficient cash flow, for example, so the finance app can wait. You also may not need an organisation chart if you have no employees.
Let BDO help you through these challenging times
Doing nothing is not an option. Focus on what you can do and speak to BDO today for the guidance and insights you need to get your business back on track. We’ll coordinate an online business recovery planning session you (along with a finance application if necessary) and follow up with a complimentary business recovery review and meetings to see your business goals through to completion.