By: Richard Walker, Head of Risk Advisory at BDO
Because we don’t know how long the COVID-19 epidemic may last, businesses must thoroughly assess their risks and quantify the effects of business disruption as best they can.
These are unprecedented times for all of us, and the only certainty is that the way we do business will change.
Even before COVID-19 became a global pandemic that closed borders, tanked stock markets and threatened the stability of our healthcare systems, many businesses were already struggling to stay afloat and maintain their competitive advantage. South Africa is still in a recession. Government debt is still on the rise. And load-shedding is still a reality. And even as Government provides financial relief to businesses impacted by COVID-19, liquidity challenges, retrenchments and even closures are inevitable.
Now is the time for business leaders to assess their risk and plan their response. , outlines a few readiness questions to consider as you do this:
- Stakeholder assurance – Have you assured your stakeholders that your business will remain a going concern during this time? Don’t let a lack of communication lead to speculation and reduced confidence in the leadership team. Swift, calm and decisive action is needed.
- Risk and resilience – If you need to change your business strategy, change it now. Look at areas where you can be more agile, look for opportunities where you can cross-sell, upsell or diversify. For example, perfume giant LVMH temporarily reduced its cologne production business (Christian Dior, Guerlain, Givenchy) to produce hand sanitisers, a large portion of which is being donated to public hospitals throughout Paris. This brings up another opportunity, which is that doing good is good for business. If you have the resources, don’t just hunker down and hope you’ll survive. Put a public face on your efforts and do good, even as you hedge your risks by exploring new business opportunities.
- Develop a new working capital strategy – As your business alters course to remain a going concern, you’ll need a revised, stress-tested and adaptable working capital strategy. This strategy may need to be aggressive and result in sweating the assets, increasing the business cycle so you can maintain adequate levels of revenue and maximise your inventory management. This could give rise to further risks like inventory shortages, which would lead to loss of sales, which would impact suppliers as businesses extend credit terms, which may result in “cash only” policies or non-delivery of raw materials. In your scenario planning, consider all the potential knock-on effects and how you plan to respond.
- Stakeholder assurance – I know this is a repeat point, but it’s worth repeating because it’s so important: keep your stakeholders, including your suppliers, updated constantly. If you don’t communicate, people may assume you’ve left the building and aren’t in business anymore. Even if your new strategy requires some hard decisions, you must show that you are acting at the frontline to ensure business sustainability. This point is emphasised with Edcon CEO Grant Pattion’s heartfelt update to suppliers on how COVID-19 has impacted Edcon’s liquidity, and that the only payments that can be honoured are salaries.
- Implement business continuity plans – Now is when you actually implement your “fire drill” procedures, a bit like pulling an emergency cord you thought you’d never have to use. Start by stress-testing your continuity plans to ensure they still serve you. Perhaps you need to split up your core divisions across different locations because of lockdowns. Perhaps you need to separate certain business units to focus on your profit centres. Remember to ask your suppliers about their own business continuity plans, too. This may mean diversifying your supply chain so you can continue to deliver.
- Plan around staff resource requirement – Because we are dealing with a human virus, you need contingency plans around the effects of staff quarantines. How will you continue to operate if resource-critical staff need to be at home? Can they still deliver value at home? If so, equip them with the resources they need: laptops, phones, VPN access and plenty of data. Many companies are already doing this, but plan for the possibility of longer lockdowns while the world tries to flatten the infection curve.
In the late 1990s, Apple came out with a slogan that has never been more prescient for the current moment: Think Different. Think Different in how you execute a new business delivery model. Think Different about your potential risks when there are so many variables right now.
Think Different about how to emerge from COVID-19 more resilient, more capable and more stress-tested than ever before.