Through the rest of this year and into next, businesses face a period of unprecedented change and disruption. The interconnected world we live in means virtually every business has been impacted by the coronavirus outbreak. This will likely continue for many months going forward. We look at three crucial challenges that nearly all business leaders will need to plan for if they are to successfully navigate and grow during this period of unprecedented change and uncertainty.
Over the past few weeks, business leaders have had to deal with immediate cash flow and operational challenges and take measures to protect staff, adapt products and services and obtain access to finance where cash gaps arise.
Looking forward, the next 12-18 months look set to be just as unpredictable and uncertain for small and medium businesses. Those who come out on top will respond quickly to the disruption and will be proactive in taking steps to reduce the impact on cash flow, sales and other key performance indicators.
A firm’s medium to long term plan should therefore aim to futureproof the business against future threats and adapt the business to fit the current environment; no matter how quickly things appear to be changing. Being proactive in this way is the key to developing and sustaining the business through times of such uncertainty and unpredictability. However, this requires an understanding of what challenges lie ahead in the first place and subsequently working out how best to respond to them. Below we look at three crucial challenges that nearly all business leaders will need to plan for if they are to develop their business during 2020-21 and lessen the long term financial costs of COVID-19.
Challenge 1: plan for the government lockdown to disrupt business until September 2020 at the earliest
The number one question most people want answered is when life under lockdown will end and society can start returning to normal. We are already starting to see Spain and Italy ease restrictions whilst France will attempt to do so in early May.
For business owners, it’s therefore very easy to underestimate the future impact of the lockdown and assume that life will be returning to normal over the coming weeks and months, and therefore it will be business as usual before long. It’s clear however from the steps we have seen other governments take and the language used by government ministers, that lockdowns will be eased gradually, one step at a time, and restrictions could well be reintroduced if COVID-19 cases start to increase again.
Consequently, it’s hard to believe that it will be anything near ‘business as usual’ anytime before September 2020. Instead, businesses need to plan for a new reality where:
- Only certain groups of people will be allowed to leave their homes and return to work.
- Large gatherings and events are likely to remain banned for some time.
- Social distancing measures could remain in place for another year.
- Initially only businesses in certain sectors will be allowed to reopen.
We therefore must assume that the life under lockdown will continue to disrupt our lives and affect trade and business for some time into the future. Business planning going forward needs to reflect this and action plans must consider how the business can continue to grow and thrive during this lengthy lockdown period; adjusting growth plans, marketing strategies and resourcing accordingly.
Business leaders should consider:
- How cash flow, sales and overall profitability will be impacted by a lengthy period of disruption and volatility caused by government imposed lockdown (view our cash flow guide here).
- When will my staff likely be able to return to work and meet customers face to face? What impact will this have on operations and growth plans moving forward?
- When will my prospective customer be able to leave their homes? What impact will this have on interim sales? And subsequently, how do we need to adapt our services and the products we offer to meet their needs?
Challenge 2: plan and prepare for a deep and lengthy period of economic downturn
As governments begin to ease restrictions and life slowly returns to normal, many predict that the economy will enter a deep and lengthy recession. The Managing Director of the IMF is describing this upcoming global downturn as “way worse than the 2008 Financial Crisis”. During this period, over 800,000 British businesses closed; with December 2008 becoming one of the worst months for British Business on record.
The government has instead said they anticipate a sharp fall in GDP growth as a result of the shutdown followed by a large bounce back in 2021. Regardless of whether the downturn is short and sharp or deep and lengthy, when lockdown restrictions are eventually eased, businesses will undoubtedly be reopening their doors to extremely challenging economic conditions.
The next 12-18 months are therefore critical and many of the operational and existential threats that businesses have faced during the coronavirus pandemic are likely to remain through the remainder of 2020 and into 2021.
Plans on how to remain profitable and cash healthy throughout this period should certainly not assume that business performance seen before COVID-19 will be repeated once the crisis starts to ease. Instead, cash and sales forecasting should reflect the fact that the businesses will likely be operating in a very challenging economic environment where businesses have less free cash flow and consumers have less disposable income.
Business planning should consider:
- How to protect the business and maintain profitability through what many expect to be a deep and lengthy recession.
- How sales of products and services will be affected by a recession and a potential fall in our customers’ disposable incomes.
- What KPIs and financial metrics do we need to monitor over the next 12-18 months to ensure the business is sustainable and healthy?
- What services can we provide customers which better reflect their needs during tough times?
Challenge 3: plan for Brexit!
With COVID-19 dominating headlines, Brexit and the potential disastrous impact for businesses if the UK were to leave the EU without a deal, has been sidelined.
Nonetheless, the Brexit transition period is due to end on 31st December 2020 with a completely new regulatory framework set to replace existing rules at the start of 2021. With such little time and so much still to be negotiated, business leaders must plan for a significant amount of change and disruption to both supply and demand. The fact that the EU and the UK’s focus has rightly switched to defeating the coronavirus, combined with the UK government insisting on no further Brexit delays, the likelihood of a no deal Brexit certainly appears to have increased.
At this stage, it’s therefore necessary to plan for different scenarios (both ‘no deal’ and ‘deal’) and assess what the effects this will have on operations, cash flow and profitability. Over time, as we gain a clearer picture of how the UK will operate once it has left the EU for good, plans will need to be updated to navigate the business through the new set of post-brexit trading rules.
Business leaders should be assessing:
- What areas of the business could be disrupted at the end of 2020 when the transition period ends and the UK leaves the EU for good?
- Where are the vulnerabilities in the business which need addressing? What areas could be specifically prone to disruption such as hiring staff, importing and exporting and managing relationships with overseas suppliers and customers.
- What effect this could have on sales, cash flow and profitability in 2021 and beyond? What would be the impact of a ‘no deal’ Brexit?
Through the rest of this year and into next, we will experience a period of unprecedented change and disruption which will affect business of all sizes.
Addressing and planning for these key challenges will help businesses come out on top and start building strategies for a more positive bright future despite the unprecedented amount of change and disruption expected this year and into the next.
Businesses need to respond quickly and swiftly to the changes and develop a financial plan for cash, sales and profitability that will ensure the business is:
- Responsive to the continued shifts and changes in freedoms that we should expect over the next 6 months as governments continue to respond to the coronavirus pandemic.
- Adaptable to the changing needs and preferences of customers through the coronavirus and the emergence of a global economic downturn.
- Resilient to the economic downturn and recession which many forecast over the next 12-18 months, as well as the significant changes ahead as a result of Brexit.
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