SME Money management in the age of COVID

 

By Sheryl Miller is an award winning serial entrepreneur, business coach and author of Smashing Stereotypes: How To Get Ahead When You’re The Only In The Room.

It’s amazing what innovations can be borne out of a crisis.

Just weeks into the pandemic, we saw new social enterprises emerge in a matter of days to provide a response to the practical and humanitarian issues that have arisen, leaving no community unscathed.

The D&T Association announced back in April that design and technology teachers of hundreds of schools nationwide were collaborating with local businesses – from flooring makers to industrial plastics companies – to produce PPE in empty classrooms for hospitals across the UK. Breweries like BrewDog and high end perfumeries like LVMH converted their manufacturing capabilities to address the critical lack of hand sanitisers worldwide. Human-centred therapy ventures – from Frontline 19 to Heather Wellbeing set up with speed to underscore the importance of self-care and mental well-being in quarantine whilst also providing free counselling to NHS frontline staff. We’ve seen businesses inventively pivot; if not to survive then certainly to contribute to communities with a common purpose – supporting those most in need.

Despite the inventiveness of some businesses in the wake of this pandemic, COVID has largely presented a cashflow nightmare for operations of all sizes. For many who were already struggling to balance the books pre-pandemic, the state enforced lockdown in March signalled a death knell for many enterprises – affecting mostly those in the retail, travel, leisure and tourism sectors.

It’s a grim outlook. Institutional, well-loved brands have since floundered. The number of companies going into liquidation or administration in May 2020 compared to the same period last year rose 322 per cent. ONS figures revealed the number of people claiming unemployment benefits reached almost 2.1m in April. The Treasury recently reported 8.4m workers have been furloughed whilst other glum predictions point to a very possible reality that we will likely experience the worst recession since 1706.

Even as the country tentatively eases lockdown measures to resume some kind of semblance of normality and claw back lost revenue, the impact on business means that change – be that on operations or on entire business models – is inevitable. How can businesses, particularly SMEs that provide around 60% of all private sector jobs, navigate the choppy economic waters of a new reality shaped by COVID?

Agile business are often deemed the kinds of organisations best able to adapt and survive a crisis; able to take adversity as a business opportunity and change the business model in order to maintain and even increase cashflow. Of course, some businesses (by virtue of their product) are able to pivot their proposition better than others.

We saw restaurants change to operate a takeaway or delivery service exclusively in the interim. Zelman Meats and Burger & Lobster, for instance, collaborated to produce meal kit boxes for diners to recreate – practically to a tee – the sumptuous steaks and burgers that would normally be enjoyed in their restaurants, at home. Theatres from The Old Vic to The Royal Opera House streamed online content of their exclusive and old archived shows. Gyms started running everything – from yoga to Zumba classes for their members via Zoom. Dating companies, like The Intro, changed to facilitate video dating for its members. Event marketplaces for booking talent such as musicians, like Encore Music, monetised their product during this hiatus by charging £15 upwards for recorded musical messages – perfect for making those lockdown birthdays and anniversaries a little bit special in the face of daily monotony. Wellness and life-coaching retreats, like Reboot Global, migrated their physical workshops held in idyllic locations to the digital space. And indeed, self-development and online educational courses have enjoyed somewhat of a boom since lockdown as people seek to diversify their skills.

It’s clear that the businesses that are able to weather the lockdown the best are those that can converge the physical with the digital. And if such convergence was merely a trend that inclined only moderately pre-pandemic, then the crisis must surely have increased momentum as organisations worked to employ a new strategy to survive – targeting a captive audience whose only portal to the outside world is the internet.

Undoubtedly, the crisis has spurred a new kind of creativity and risk taking in commerce that might, perhaps, have never have ordinarily come about if the pandemic have never presented itself. Yet, arguably, a pandemic is not the ideal time to road test crazy ideas if the main strategy is to keep cash-flow steady during a period of ongoing uncertainty; just the employment of critical elementary processes that any business can take in order to weather the bad times.

These fundamental measures include:

1. Cashflow forecasting: If you’re not already doing so, start a daily, weekly and monthly cash flow forecast so you understand your requirements fully. This can make for sobering read, but by being fully transparent and realistic about your outlook, you can then set aspirational yet achievable financial goals in the short, medium and long terms based on fact – not optimism or hope.
2. Slash your costs: Review every expense line from largest to smallest and reduce, negotiate and eliminate costs wherever possible. Renting office spaces, for example, a huge overhead BC (Before Coronavirus) might well be reconsidered. Indeed, specific businesses – be it from design agencies to consultancies who have actually seen that remote working has benefited their bottom line, improved work culture and not detracted from performance – may deem the physical office space as an unnecessary expense if the ‘future of work’ is largely from home.
3. Renegotiate with suppliers and lenders: Review all liabilities (payments) and contract suppliers to renegotiate payment terms that are mutually agreeable to both parties. This is essential for ensuring you do not fall into short term cashflow problems and allows for effective financial planning and forecasting.
4. Search far and wide for funding: Extend your search from funding beyond just loans and grants that have been made available to COVID-affected business. Investigate regional or industry-specific business funding too, as well as crowdfunding and angel investment as additional options.
5. Review all debts (money owed to you): Late payments from clients cause all sorts of headaches for SMEs. Pre-pandemic, this was an issue that saw 78% of businesses being forced to wait over a month or longer beyond agreed payment terms before money owed was settled. Get adept at chasing overdue debts but, at the same time, don’t lose your sense of humanity in the process – due to COVID there are myriad reasons as to why late payments occur. Liaise with your bank or financier to quickly solve cashflow issues relating to unpaid debt and, if late payments affect your ability to pay suppliers, be as upfront and transparent as possible so that you can renegotiate terms. Going forward, strike good relationships with clients that have a good credit rating for paying on time.
6. Review all assets: Look at stock, equipment and any other assets you think you can sell in order to raise capital in the short term whilst mapping out a plan to recoup those assets in the near future once you’ve become more financially fluid.
7. New cash generating revenue opportunities: Read, research and reflect on the strengths, weaknesses, opportunities and threats of your business and the sector in which you operate – particularly in a post-COVID world. Change in some way is inevitable, inescapable even. Use this as a time to determine a plan where you can tweak and diversify your offering, as well as add value for customers in a climate where people will naturally be cautious of spending.

Ultimately, during this ongoing period of uncertainty, don’t lose sight of the fact that more money needs to be flowing into the business than flowing out in order to keep the lights on. Measure and evaluate cashflow at all times so that you understand your current financial position and can make informed decisions and ‘affordable risks’ – not just to keep the business afloat but to grow it even within economically hostile environments.