Australian SME owners are bracing for an imminent recession, inflicted by the global coronavirus pandemic.
Our recent survey of SMEs revealed that, in response to the virus, 66 per cent are concerned that we will experience a recession in Australia, and 62 per cent believe the severity of this will be the worst downturn Australia has experienced in the past 20 years.
Identifying the stages of the COVID-recession
With chaos surrounding the global economy, your business might have faced a very real risk of failing. However, you also have a unique opportunity to survive and prosper as the recession passes.
Many of your competitors will fail, so identifying the stage your business is in and how to operate better will enable you to put your best foot forward to survive. The four stages of the COVID-recession:
- Chaos: There is mass panic, government regulations and support schemes constantly changing, seems impossible to make a prediction for the future.
- Worst-case scenario: The event you must plan for even if it doesn’t eventuate – all revenue has stopped, business operations cease, expenses are being incurred without the cash to pay.
- Emerging pattern: Operating at a reduced capacity, but with less regular ‘shocks’, orders are returning, and it becomes more manageable.
- Rebuilding: Real potential to build your business beyond where it was before, realistic plans can be entered.
Your business has the opportunity to be more agile, efficient, cohesive and customer-focused – more than ever before. So how do you assess where you currently stand and what your response should be?
Entering chaos
Fortunately, we’ve largely navigated through the chaos phase of this pandemic. However, there are still important steps you should take if you haven’t already, namely forming a diverse “survival team” to ensure you have an open dialogue with all team members and understand their concerns.
This will ensure you are getting real feedback from your employees and, importantly, your customers – without this you’re working in the dark.
While the JobKeeper wage subsidy has allowed a lot of small businesses to survive to this point, to truly weather the storm all SME owners need to strategically analyse all the risks and plan a pathway through them.
Regular communication (i.e. through weekly catch-ups via Zoom or Teams, or a dedicated email alias) will allow different members of the team to update on their issues or concerns.
What to do if worst-case scenario is looming
Consider this: will your business survive for any period of time if revenue has dropped well below breakeven point?
It’s not a pleasant thought, nor is it easy to implement, but if you have to cut costs, make sure that the burden is shared equally by all team members. Wages are often the highest cost incurred for most SME owners, so this is an area that can’t be ignored.
Cash flow must now become front-of-mind, even more so than before. Obtain daily reports for cash balances on all accounts and weekly debtors. You should also break these costs down in order to get a complete picture of your business e.g. daily labour cost.
You might also consider getting rid of old stock through discounting, and deferring payments wherever you can. With tax time approaching it’s also important to speak with your accountant to ensure you’re claiming all deductions you can. The last thing you want is a high tax bill this year if you’re anticipating more difficulty to come.
If you’re looking to advance credit, make sure you have a new customer form to capture all relevant information.
There are active steps you can take to reduce your exposure in the event where your business fails. Seek professional advice from an accountant, preferably one with experience in insolvency. It’s quite distressing to consider, however it’s important you protect your personal assets if worst case scenario arrives.
Patterns start to emerge
It looks like we’re close to this stage, where most businesses who have survived are now operating on relatively solid ground. During this period, focus your efforts on sales and marketing because you will need new business to make up for the business lost in past months.
Related:
Stay informed on government regulations to take full advantage of the various subsidies available, and to determine when you can start bringing your team back. There is no rulebook on rebuilding from massive worldwide dislocation so there may be some bumps in the road. It’s important to recognise the new pattern you are now operating in and maintain a high focus on cash flow.
Rebuilding into the future
Rebounds from recessions are historically low and not euphoric so be prepared to take two steps forward and one step back.
Having said that, this is a real opportunity to be proactive and get on the front foot. Gather your survival team and utilise different voices to look at new opportunities within your market.
Your competitive landscape will likely have changed significantly. Chances are, there will be fewer competitors, and it will be easier to hire new staff.
Continuing to try and operate how you used to simply won’t work, you need to look ahead to the new world.
Read more on how to survive the impending recession in our business survival guide.
Roger Mendelson is the CEO of Prushka Fast Debt Recovery.
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