Covid-19 – five things for business owners to keep in mind
There can be no doubt that the Covid-19 pandemic has had a severe effect on business. With South Africa’s difficult economic environment materially worsening during the crisis, many business owners now face a significant reduction in revenue.
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During the lockdown period, they have often had to contend with low and sometimes even no sales, while anticipating lower demand and customer activity post-lockdown. At the same time, they are still required to meet their expenses, many of which are fixed.
As a result, businesses quickly find themselves with constrained cash flow and few signs of rapid recovery on the horizon. Recovery will not happen overnight. In facing the storm, they will need to set themselves up in the short-to-medium term for survival.
However, the businesses that can shift focus, adapt and realign to the current environment will be better able to capitalise on the opportunities that will emerge after the crisis has subsided.
Given this backdrop, here are five principles that you, as a business owner, may wish to consider.
Focus on cash flow projections
Spend time on the 12-to-18 month financial forecasts for your business. While this can be a difficult task in a nervous environment where so much is still uncertain, the very act of applying your mind to cash flow gets you thinking about the right things.
Moreover, financial projections will be more of a requirement from banks when applying for new or increased lending facilities (more so than before Covid-19).
Get cash to work for you
Cash, as the saying goes, is king. As a business, you should be diligent with short-term cash flow and liquidity requirements. Where possible, cut unnecessary expenses. In some cases, this may even mean a restructure of your business. Be flexible and open minded.
If your business has cash on hand, make sure it is invested in products that yield the maximum return while still meeting your liquidity needs.
Right-size your borrowing
Make sure your borrowing facilities are optimised to suit the current Coronavirus environment.
In these unprecedented times, reliance on bank facilities will most likely increase. As a business, you should be proactive in engaging with your bank to ensure you have adequate-sized facilities for your needs.
In fact, if you have existing loans, credit or overdrafts, you may look at restructuring these facilities with the bank as it could help in alleviating cash flow pressure. Furthermore, you should determine whether your business could qualify for any relevant Covid-19 relief loans.
Keep in mind, the financial forecasts mentioned above are critical in these discussions with your banker.
Minimise market volatility
Global and local economies are in a state of flux. With social and geopolitical tensions, economic uncertainty – not to mention US presidential elections coming up in November – significant market volatility is likely to continue for the rest of 2020 and beyond.
If your company’s revenue or expenses are likely to be affected by market volatility (currency, commodities, etc) you should consider risk management structures and policies to minimise the effect volatility has on these asset classes and their earnings.
And an appropriate hedging policy will also create more certainty and assist in more accurate cash flow projections.
Look after your people
Don’t overlook the human factor in your working environment. During times like these, business owners are taking a lot of strain – and the pressure is similarly being felt by employees.
The truth is that Covid-19 has created considerable personal and financial stress on individuals and their families. Empowered employees are the back bone of your business, so it’s especially important for leaders to support their people as much as possible.
While it’s important to make sure the business is as efficient and resilient as possible, don’t underestimate the difference emotional support can make to employee performance and wellbeing.
As you mitigate the damage the global pandemic has wrought on your business, responding to immediate challenges and volatility now requires that you stay ahead of potential risks and pitfalls. And managing your cash flow should be key to your risk strategy and business forecasting.
If you are currently re-looking your liquidity requirements, don’t hesitate to speak to your Private Banker.