Posted: Wed 6th Oct 2021
Businesses have always had to survive difficult times – when significant customers move elsewhere, for example, or when key suppliers go out of business.
In the past, however, these hurdles would tend to present themselves in isolation. A business might struggle to survive them, but would have alternatives to turn to, and eventually prosper.
COVID-19 has changed that for a significant number of businesses – but not for all, which makes it more difficult to manage. Yet the same principles that have seen businesses survive in the past will see them through to the future.
So, what should you be doing? Here are five key steps to keep in mind.
1. Talk to your customers
Find out what your customers want and how you can help them.
As an example, take your local dry cleaners. The owner recognises that many customers are afraid of COVID-19 and don't feel safe coming to the premises. So, now they open later and close earlier to provide a collection and delivery service. Turnover is down, and it's hard work in a semi-rural community, but the business will survive. Loyal customers have tried to help by bringing their curtains and bedspreads to be cleaned.
By contrast, consider the mechanic. During lockdown, they picked up work, helping customers to complete projects that had not seen attention for some time. They painted a petrol tank for a motorbike and resprayed a 1960s Cortina. However, because they didn't make people aware of the work they could do, they haven't developed a potential new line of work. They last updated their website in 2015.
2. Remember that salesmen just give the product away
Until the cash from your customer is in your bank account, all you've done is incur the costs of the sale, whether it's goods or services. You haven't reaped any benefit.
It's crucial that you aren't afraid of credit control and that you pick up the phone to talk to customers about payment – or employ somebody to do it. It really is that simple.
Any business will experience periods when cash is tight. The first question to ask when deciding how to divide up available cash is "Have they asked for it?" If the answer is no, it's a simple thing to defer the payment to the next payment run.
Also, you don't need to wait until the invoice is due. It's good business practice to ring and check if the invoice is approved and ask when it's scheduled to be paid.
3. Have a cash forecast
Forecasting your cash is vital, and these days there are plenty of online solutions to help. If your business is VAT registered and/or pays rent every quarter, a 13-week forecast will cover your immediate business cycle.
You may need longer if your business is seasonal or spending large amounts on a project. The forecast will reveal where the 'pinch points' are in the near term and give you the opportunity to manage cash – by chasing debtors or talking to suppliers, for example.
If the problem is more severe, talk to potential lenders in good time to find an acceptable solution.
4. Understand your customers
Not all businesses have felt the impact of COVID-19. As a result, it's important for you to understand:
how the pandemic has affected your customers and key suppliers
how that might, in turn, affect your business
For example, the vehicle leasing business that hires vans to sole-trader delivery drivers can be reasonably certain that there are no immediate risks to their business risks.
However, the business that has a fleet on hire to a company providing sound and lighting rigs to outdoor events will have to stay much closer to its customers. That business needs to understand when and if the client will be able to make payments, and the impact of that timing on its own business.
5. Have a plan
Combine all the above points and you see the need to have a plan that convinces you how you're going to get through the next 12 months.
Informing the plan will be all those discussions you've had with customers, suppliers and others, so you know you've built it on sound foundations. More to the point, you'll be able to plan for any actions you need to take – discussions with lenders, for example – long before the problem becomes acute.