Looking at the rest of the world and the devastation COVID-19 has inflicted, we are fortunate to remain the lucky country. We have succeeded in bringing the spread of the virus under control and the panic we felt in those early weeks is subsiding.
As we slowly get back on our feet we should remember that we have endured crises in many shapes and forms before. Out of the crucible of these events our society inevitably adapts and reshapes itself and the aftermath of COVID-19 will be no different. While Australians appear to have survived the immediate health crisis, the economic, business and social impacts of COVID-19 are still unfolding. The question in the back of our minds is "where to from here"?
One outcome that seems certain is that the recovery of our damaged economy will be slow. The International Monetary Fund estimates the Australian economy will shrink by 6.7% this year. Whilst governments have bandaged the economy enough to stabilise it, we need to be prepared for the long period of recovery that lies ahead. The literature and commentary is constantly referring to adapting to the 'new normal' – the problem is we don't quite know what that is and there still seems to be more questions than answers.
As few of us have lived through a pandemic like COVID-19 before, uncertainty about the inevitable impacts can be overwhelming. As fear and anxiety are natural biproducts of uncertainty, it is critical for our recovery that we do not become paralysed by that uncertainty.
Change brought by COVID-19 has been confronting and swift. As we enter a period of 'stable uncertainty', businesses need to take time to take a breath, reassess their situations and make plans. In particular, as support from governments wind down, hard decisions may need to be made. How those decisions are planned and implemented will play a major role in the survival of your business.
The full impact of COVID-19 on businesses are yet to be seen and will definitely not be uniform – there will not be a miracle solution that applies to all situations. Some businesses have been flattened and are unlikely to recover, while others have benefitted as their business was either positioned to meet the crisis or has been able to pivot and adapt to the changing circumstances. Examples include car rental businesses which during lockdown effectively lost their entire revenue overnight, whilst logistics companies had an increase in business with the surge in on-line shopping, home deliveries and maintaining supplies for supermarkets and manufacturing. Then you have those businesses which pivoted – breweries and distilleries such as Young Henry's which shifted production to make hand sanitizer.
5 Tips going forward
As we maximise opportunities for Australian businesses, we outline below our 5 tips for regeneration:
1. Take stock and breathe
Assuming you have 'stabilised the ship' for the short term, take the time to assess where your business is currently, including looking at:
- Cash flows and credit risk – consider if you need to restructure debt and finance facilities as well as looking at if there an insolvency risk. Ensure debtors are being managed appropriately.
- Availability of incentives or benefits – JobKeeper, small business stimulus and relief packages, tax breaks and deferrals.
- Product mix and changes in demand profiles – with people focusing on necessities rather than luxuries, do you need to change to meet changes in demand? Remember the 80/20 rule.
- Core and non-core and performing and underperforming businesses and assets - again remember the 80/20 rule.
- Distribution channels – consider cutting channels that do not perform.
- Marketing and brand positioning – It's easy to cut marketing spend but the 'pie' will be smaller. Competition for market share will be increased. Maintaining visibility and connection to markets and customers is essential.
- Supply chains – who are your key suppliers? Do you need to change suppliers? Do you need to try and end contracts?
- Workforce realignment:
- consider employee numbers;
- changes with increased numbers working from home (it is estimated the number of people working from home will increase from 30% to 48%) will require an assessment of issues such as WHS obligations and increased data collection to monitor a disparate workforce; and
- put in place COVID-safe workplace requirements for those who return to the workplace.
You should note there is nothing remarkable in the list. Implementing basic techniques to review and analyse your business will bring a sense of normality and assist in regaining control.
2. Make Plans and Plan for the Worst
Make a plan to survive the next six months and another plan to rebuild the business to adapt to the 'new normal'. Be ready to respond to change quickly, particularly if we have a second wave of COVID-19, as was experienced in Singapore, South Korea and Beijing.
When creating future plans, understand what your worst-case scenario is. Unless you are a serial pessimist, people generally don't like to look at the worst-case scenario. However, it is essential to do this to create a baseline from which you can start to develop ideas to try to avoid that outcome.
3. Engage, Access Information and be Flexible
Engage with stakeholders early. Stakeholders can include financiers, suppliers and employees.
Early engagement with financiers will typically see greater levels of flexibility when considering options and alternatives with financial restructuring. Trying to restructure when things are dire or too tight will limit options, as risk aversion from financiers will be at its highest.
Engage with employees. Research has shown that involving high-performing employees to help develop a response to a crisis sees them become more invested in the business. They may offer creative solutions but most importantly they become engaged with the business and stick with you.
Access information and analysis on trends in consumer behaviour and markets. Sources such as the Boston Consulting Group Consumer Sentiment studies have interesting and useful information. Look broadly as there could be markets and opportunities out there which you may not have previously considered. Indicators will give insight into trends and provide signposts for you to navigate the 'new normal' and chart a course for your business.
Be receptive to ideas, engage with others in your sector, always adapt and be flexible. Where possible pivot early into new markets to meet changes in consumer behaviour. You will get ahead of your competitors and build engagement with your market.
4. Keep an eye on cash
As noted above it is essential to consider the business' cash position. With Australia already in recession according to the Treasurer, and 72% of businesses reporting reduced cashflow which is expected to have an adverse impact on their business, it is essential cashflows are monitored.
It is important to remember if you are a director of a company that your duty shifts from shareholders to creditors if you are insolvent or nearing insolvency. This is particularly important once the insolvency safe harbour provisions introduced in the early stages of the COVID-19 crisis ends.
5. Innovate – fight for your slice of the pie
Often with uncertainty comes conservatism. People will be spending less and focusing on essentials rather than luxuries. In its April 2020 Consumer Sentiment study, of those consumers surveyed by the Boston Consulting Group, 47% said they were abandoning luxury products and 64% said they would be focused on essentials and basic simple products.
The mantra in the period before COVID-19 was to differentiate and find a niche which mainly occurred in 'non-essential' goods and services. Post COVID -19 will limit the ability to differentiate and find those niches as discretionary spend dwindles in the short to medium term.
This does not mean there won't be opportunities, however, they will be harder to identify and the fight for the customer will be more intense. While the demand to 'innovate' has been around for some time, it is essential now to survive.
As we enter a more stable phase, businesses should have developed (or be developing) a plan for what their normal will now be. Do this sooner rather than later to ensure you stay ahead of the competition and increase the chances of not only surviving any economic downturn, but maximising any possible opportunities.
The truth is, the fundamental issues which need to be dealt with to be successful in business really haven't changed. What has changed is the landscape in which those decisions must be made.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.