Managing In This Recession

I have read recent news items with interest, particularly after the Federal Government released the new JobSeeker and JobKeeper arrangements. There were two specific articles that caught my eye. One by James Kirby in The Australian and the other by Michael Pascoe in The New Daily. 

Kirby’s article was headlined “COVID impact” and how “… economic update casts a shadow”. Essentially he was saying how we as individuals and business generally have a seriously challenging time ahead because of rising unemployment, falling immigration, property prices falling due to the unemployed not paying their mortgage, and a realisation how important the JobKeeper/Seeker support programs, which are about to be reduced and eventually removed, are to business and the economy. 

Pascoe’s article was more focused on how the level of debt being incurred to make these payments is manageable and shouldn’t cause major concern. He completely ignored the topics Kirby discussed. 

It is now clear the current COVID-19 “crisis” has been devastating for some and a gold mine for others. Unfortunately, that split has not been evenly distributed.

While our business journalists may disagree on the macro, business owners and executives of those negatively affected by the virus know only too well the impact a collapse of demand can have. 

While I am no Nostradamus, I have been talking about how business owners and executives could prepare for a downturn in a number of my past newsletters. It was clear that after nearly 30 years of continued growth some level of the downturn was due, if for no other reason, to normal business cycles deeming it so. So now that the virus has hit, caused the downturn, the initial shock is over and business has been somewhat stabilised, it is now time to look at how one moves forward, especially now that we know the Government’s plan with the economy and support programs for the near future. For those businesses that have been heavily hit, areas to look at are:

• Efficient use of capital particularly in the areas of inventory management and accounts receivable. If you don’t have first-class inventory management practices in place (and I am constantly surprised by how many businesses do not) then now is the time to start. Likewise, proactive AR practices should be in place. Both these activities will reduce your working capital and return cash to the business. Something that is likely to be important to most businesses at the moment.
• Judicious cost-cutting. The knee jerk reaction is to quickly stop spending and cut costs, with staff being the most obvious. This reaction often comes from a lack of understanding of where value is actually created in the business and where costs are actually incurred. If the business is slow at the moment, take time to re-examine the key areas of your business, find non-value adding activities in your current processes, and eliminate them. This will drop those costs directly to your bottom line.
• Pivoting to new areas of business. The effectiveness of your sales team will be under more pressure now and it is important you have effective salespeople finding what demand is available to be serviced. This may require you to pivot your business into new areas and markets. There are a number of well-documented cases of distilleries pivoting to hand sanitiser and car companies pivoting to ventilator production. (I covered this topic in an earlier newsletter). If you haven’t looked for pivoting opportunities, start looking before it’s too late and they have vanished.
• Keen control of margins and price competitiveness. With a greater number of businesses out looking for new markets and what demand does exist, the market will inevitably become more price-conscious. 
• Business 101 becomes so much more important now. Customer service is acutely important at the moment. Delivering on time to specification is so much more important – because if you don’t, there are so many other businesses knocking on your customer’s door, it is easier for them to change now than it was before.
• Supply Chain optimisation.
• Review what metrics you use to run and manage the business and ensure you are reporting and taking action against them. Include metrics such as: Return on capital employed, inventory turns, Cash to Cash cycle time, EVA.
• Make sure you haven’t neglected succession planning.

For those businesses that have hit the gold mine, there is a high probability they are experiencing typical growing pains such as:

• Capital is short as it funds the growth.
• Business processes are restricting efficiency, especially if they are using spreadsheets to manage the business.
• Visibility into the business operations are opaque at best and it is difficult to find improvements.
• You more than anyone needs to ensure you have the succession planning covered (see the link above for more on this).

This is a great time for them to undertake a system replacement. While one should change these systems before they are needed, there is nothing worse than having to change a system under stress, except not changing it while under stress.

As I have often said before these points are not anything new. Remember that Peter F. Drucker taught for over 70 years the importance of getting on the same side of the desk as your customer. He always taught there is no such thing as irrational customers, only lazy “manufacturers” (his words not mine but it does relate to all business owners).

If you or anyone you know is looking:

• To improve the way their business operates; 
• To improve the way they leverage their current system;
• To replace their current system;

give me a call for a confidential discussion on the best way to achieve this.

Until next month …

Sincerely,

David

© David Ogilvie