Tips for Businesses to Prepare for COVID-19

The Black Swan event of 2020 is here, and like any black swan event, it has taken the world by storm. It was unforeseen and unprepared for. This may finally be the one that necessitates companies to rethink their business strategies.

During these tragic and uncertain times it is not just people’s lives that are under threat, but also their livelihoods. The continuity for a lot of businesses are at risk as more countries implement strict measures against the Novel CoronaVirus pandemic. While such measures are necessary for our collective wellbeing and survival, it can also have negative impacts on businesses such as;

1. Low Sales – As authorities urge people to stay home, an increasing number of people voluntarily isolate themselves to avoid the risk of exposure. Certain businesses and areas are also subject to quarantine lockdowns by law. This results in lower physical traffic and businesses without a significant online presence will be negatively affected.
2. Employee Shortages – Due to the spread of the virus, more employees will be hesitant to go to work. This will leave business with a shortage of employees to carry out critical functions of the business.
3. Supply Disruptions – China, being the factory of the world, means there will be heavy implications on a lot of businesses that had been sourcing raw materials and finished goods from China.

To manage the risks posed for businesses by COVID-19, it is imperative that swift actions are taken by businesses to respond to these events. This will position businesses to better navigate through this crisis and also help take advantage in the recovery phase.

The ability of businesses to manage these risks depends heavily on how prepared the business is for such an event. This includes having a business continuity plan, a disaster recovery plan and a comprehensive risk assessment which will enable the business to identify such risks and their mitigation strategies beforehand.

Following are some steps that can be taken right now to minimize negative impacts on a business.

1. Updating financial statements

The financial statements need to be up-to-date to make the most informed decisions. Ensure all financial statements are up to date so that it reflects the current finances of your company.

After updating the financial statements, perform a ratio analysis to determine the health of the business. Also ensure that the cash flow statement shows a true view of the cash available for the business.

2. Make a quick assessment on all the risk events

Make a list of all possible impacts of risk events on the business. Risk events can include low sales, employee absenteeism, supply shortages, etc. Then, come up with a projection of the financial impacts posed by these events. Finally, move on to devise mitigation strategies.

Impact of Risk Event	Financial Impacts	Mitigation Strategies
A fall in the physical traffic into the business for a one or two months.	A 50-80% drop in sales for a month leading to a low cash reserve.	Enhance your ability to sell and deliver goods to customers. Take actions to build the cash reserve.
A key supplier is unable to fill your orders for one or two months.	A 20-30% drop in sales OR having to shut down production. Cash reserves becoming dangerously low.	Talk to key supplier about their COVID-19 contingency plan Seek alternative suppliers. Stockpile essential items. Take action to build the cash reserve.
A key customer stop placing orders for three months	A 15-30% decline in sales for three months, leading to low cash reserves.	Talk to the key customer about their COVID-19 contingency plan. Seek new customers to offset reliance on key customer. Offer discounts or other payment terms to key customer to keep them buying. Take action to build the cash reserve.

3. Make a new budget according to the new set of assumptions

Sit with the accountant and draw up the new budget after considering the impacts and mitigation strategies. Think of how the cash flow can be managed from impacts such as reduced sales

4. Act IMMEDIATELY to improve your cash flow

Cash flow is the lifeline of your business. If you manage your cash well and you will find yourself navigating through these tough times with minimal impact. Manage your stock, debtors, creditors, spending and assets in such a way that it will improve cash flow. Also there are short term financing solutions available to meet working capital and other short term financing needs.

5. Change your business model

To remain viable many businesses need to start selling online or increase their online sales. A lot of people are going to stay home due to the crisis, either voluntarily, or due to instruction from the authorities. But they will still have a need to purchase goods and services. This is evident from the website traffic and social media trends of businesses in affected countries.

Determine the most suitable platforms for the business to sell its product or service and establish an effective delivery mechanism.

6. Make a business continuity plan

A business continuity plan is essential to ensure that the business continues to exist despite a crisis. We will be providing guidance on how to formulate your business continuity plan in subsequent articles.

7. Talk to key suppliers

Talk to the key suppliers and determine how supply may be affected. Consider the logistics along with suppliers’ ability to provide stock and try to maintain the agreed prices. Seek out alternative suppliers to minimize the risk.

8. Identify critical functions and employees of your business

Identify the critical functions required to operate even during a lockdown, and the employees needed to perform these functions. Identify those employees that can work cross functionally and keep back up employees for times when key employees cannot come to work or fall sick. Train employees for the versatility to perform different types of jobs.

Arrange the ability for employees to work from home and ensure that they have laptops and other necessary equipment and communication systems to perform their task. This is particularly important during a lockdown situation to protect the well being of employees.

9. If you are in financial difficulty seek professional help

If you have a concern about the continuity of your business, and think that the business is in real danger of closure, do not wait to seek professional help. The right actions at the right time will make all the difference.

Most of all, be compassionate and help each other out. Your stakeholders, especially your employees depend on you in these tough times.