I am currently working with a number of Small and Medium sized Enterprise (SME) clients on the CFO consultancy side of my business services, helping them protect their businesses as far as possible during this stormy period of fear and uncertainty caused by the global COVID-19 virus pandemic. The goal focussed on coming out the other side of the storm, and, if possible, in a position to maximise the opportunity presented by a potential increase in capacity as spending taps are turned back on by clients and consumers.
This note is intended to provide thought provoking and helpful financial sign-posts, and is split into 3 sections (parts B & C will follow in separate posts):
A) Leadership focus to build business resilience
B) HMRC opportunities for businesses
C) Top 10 financial incentives that may be available + latest government update
(A)
My summary advice is for the SME business leadership team to focus on these principal areas in these circumstances; order of importance depends on the nature and position of the business, but personally I tend to start with People:
1 - People
2 - Clients
3 - Cashflow
4 - Revenue
5 - Costs
6 - Product
Some of the questions that may be pertinent to consider in each of these areas, dependant upon business life-cycle stage, sources of funding, nature of product / service set, marketplace sector, and geographic footprint, include the following:
1 - People
a) are the people within the organisation clear on the objectives of the business over the next 3-6 months, and their part in delivering these; quantitative and qualitative; both leadership and operational?
[in the services sector, people are the assets and a principal area clients are investing in. Ensuring they are all in a good place in terms of mindset, clarity, have the information they require, and are pulling in the strategic direction the leadership have set, will hold the business in good stead]
b) are there unambiguous communication protocols in place to enable free movement of information to where it is required within the network of people to maximise the impact of decision making?
[team collaboration is key to maintain excellence in client delivery; and the movement of information from top to bottom, side to side, and bottom to top will assist informed decisions and their execution]
c) is the business model of people employed, freelance, partner and adviser appropriate to the evolving environment, current risks and opportunities, and business goals?
[a healthy balance between employees, freelancers and outsourced partners will support agility in evolving and adjusting direction, in an efficient and profitable way]
2 - Clients
a) are clients being serviced sufficiently closely to ensure the business is able to deliver and receive communications transparent enough to service requirements, give confidence in continuing to spend, and gain timely feedback on changes in their plans?
[revenue is the fuel to drive affordability of the business cost base, and deliver the cashflow oxygen supply. Understanding the potential ebbs and flows in the business revenue streams as the needs of clients evolve, as their customer needs and business strategic drivers change, will enable a value-adding responsive approach]
b) is there an appropriate balance in the time invested in existing clients and potential new business pipeline opportunities?
[as consumer and client requirements evolve, existing clients and their changing needs must be serviced effectively; but there is also a need to identify where growth or revenue replacement opportunities will arise]
3 - Cashflow
a) are detailed rolling 12 week cashflow forecasts available showing expected impacts of Expected Case and Worst Case P&L forecasts; along with Balance Sheet payments and receipts?
[during this period high level, monthly cashflow forecasts will not deliver the insight required for micro management of peaks, troughs and opportunities to improve]
b) is the cash runway (length of time until cash liquidity is exhausted) being maximised through identification of all funding sources; potentially including investors (equity), banks & financiers (debt), government grants; client payment accelerations, opportunities to equitably delay supplier and partner payments, and margin improvement?
[maximising all affordable sources of funding will provide a safety net to the business enabling continued investment in key areas]
c) are business leaders aware of the ongoing organisation solvency and liquidity levels?
[if Revenue is the food/fuel for healthy business ‘body', and Profit the water for strength and growth, then Cashflow is the oxygen supply. The business body can potentially survive without food or water for a period, bit not oxygen]
4 - Revenue
a) are detailed WEB based forecasts maintained at client and project level on a regular rolling basis with feeds in from all those with relevant and timely information?
[WEB = Worst - Expected - Best; understanding the drivers and variances in the different scenarios facing the business as they evolve, enables effective mitigating/growth decision making]
b) have insurance policies been reviewed for the potential support to the business due to this event?
[loss of income or increased costs of working through business interruption driven by significant events may be covered in one or more of the insurance policies may have in place. Reviewing the key clauses of policies in this area is worth considering]
5 - Costs
a) have non-essential discretionary costs been eliminated or put on hold for a period?
[this is seeking to free up cashflow for essential cost and investment areas required in supporting the core of the business to protect key assets and drive revenue/cashflow]
b) have triggers been identified for further reductions in the cost base should certain defined events occur? (e.g. material reductions in revenue / cashflow when compared to the baseline expected case)
[having a plan of action, should trading conditions deteriorate, will enable considered evaluation and decision making about business investment priorities]
c) has the pain and process for reducing each individual cost areas been assessed?
[the materiality, feasibility, process, and impact on the business, its people and its clients should assessed as part of scenario planning]
6 - Product
a) do clients view the business as having a value adding differentiated product / service set, with excellence in delivery and execution?
[giving clients the confidence to continue to spend, with your business, helps protect the business in the short term and potentially creates stronger relationships for the future]
b) does the product / service offering need to be evolved for the client and consumer needs of tomorrow?
[extraordinary times tend to create pivots (out of necessity or opportunity) for change in behaviours and needs from consumers and business. What was required yesterday in terms of business offering, may not be required tomorrow. Evolving the business offering / products / services / positioning may be required to protect the business, and may create an opportunity to drive value add to the client base]
I hope you find this helpful. Where opinions are expressed, they are my own, along with the interpretation of where opportunity and risk may present. For a business, and an individual, to flourish they require luck. The best definition of ‘luck’ that I came across is ‘where Preparation meets Opportunity’. With opportunities likely to present themselves when this storm passes, that just leaves the preparation!
If there is anything you would like to talk through, please do let me know.
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