More than six months on from the start of lockdown, we have come to accept that the effects of COVID-19 will be felt well into 2021, and possibly beyond. You’ve probably been thinking a lot about how to ensure the future of your business. Here are my thoughts on how businesses will survive the pandemic.
Take a hard look at your financial situation
If the pandemic had only lasted a few months, the vast majority of businesses would have been able to bounce back largely unscathed. This prolonged period of disruption means that some businesses simply won’t make it. It’s time to take a step back and look at the financial health of your business. Some tough decisions may be necessary.
You should re-assess all your overheads and reduce outgoings where possible. If your revenues are down, it’s essential to cut costs too. Stop any non-essential spending and divert budgets that aren’t contributing to the long-term viability of the business. You could consider outsourcing some of your non-core activities while identifying potential new revenue sources.
The way to judge the company’s health is to look at your profitability. If your business model is right, you should be able to scale the size of the business down if revenues are down so that you stay profitable. Success can mean having a smaller business that is profitable. Being able to adjust up and down while making a profit – at higher or lower levels of activity – is the key.
Your biggest asset is your people
Lots of businesses were able to stay open because the government was funding 80% of their salary costs. Now that TWSS has been replaced by the EWSS – with its tighter eligibility conditions – there is bound to be a considerable drop-off in claims and business are looking around to see what other help might be available to them.
Schemes such as TWSS were an immediate and necessary response to the catastrophic effects of the lockdown on certain sectors and types of business. But we’ve had six months now to pivot businesses, adapt revenue models, reduce overheads, and make other changes that enable our companies to withstand such external shocks. If you still need that level of support, it’s likely that you have failed to adjust adequately so this should be a top priority for you.
Many businesses had to reduce salaries as part of their survival strategy. These employees may be fundamental to the business and retaining good staff is going to be crucial to building your business back up or growing it in 2021. If you have had to cut the salaries of key people, it’s important that you have a clear plan for getting them back to where they were before. Talk this through with them and show them how you are going to do this, or you may lose them when you need them most. You could consider offering growth shares as part of this plan. They are a great tool for incentivising key members of the team.
Prepare to survive, and thrive, in 2021
I know lots of business owners that have been working really hard this year with very little reward. Competition for tenders and other opportunities has been fierce. Projects that were a sure thing have been axed at the last minute. But do what’s needed now and things will be OK. If your business is viable, now is the time to start proving it! Yes, things are in flux, but set out your stall and have a plan to survive, keep busy, and do good business.
I highly recommend you take some time out right now to develop a business plan. October-November is the perfect time to finalise a plan for 2021-2022. We have to assume that business will return to normal at some point in 2021. Even if it doesn’t, what is your plan for that? What are you going to do that will have a market? Doing nothing is not an option! You’ll need to look at how you can make a profit, because banks and investors aren’t interested in businesses that make a loss.
What to do if you need cash
It’s important that your business has liquidity, but don’t just borrow cash if the company lacks liquid funds. I don’t think this is a wise tactic as you are creating a liability for the business and repayments will start as soon as the loan arrives. Financing loses isn’t sustainable and you are better off cutting costs.
I would also recommend an overdraft instead of a loan. If you don’t have an overdraft facility, apply for one as soon as you can. Even if you end up not using it, it’s better to put one in place while there’s no pressure to do so as the process can take quite a long time. You can typically get an overdraft equivalent to one month’s revenue.
If you need capital, there is a raft of new money available for businesses and you will be able to borrow if you have a clear plan for growth. Your newly finished business plan will be key to showing how your business can be profitable in spite of the challenges posed by COVID. If we take the Future Growth Loan Scheme (which has seen new injections of funding) as an example, part of the application will need to highlight your resilience in light of COVID-19.
If you need loans or investment, here are a few places to start you research:
- P2P lenders such as Linked Finance, Grid Finance, and Spark Crowdfunding
- the Future Growth Loan Scheme
- the Working Capital Scheme
- talk to your Local Enterprise Office or Enterprise Ireland as they have some interesting business expansion supports at the moment. In particular, EI’s Sustaining Enterprise Fund is offering funding of between €100,000 and €800,000 with no repayments for the first three years. Up to €200,000 of the fund is potentially non-repayable.
Deferring tax debts
Remember that you also have the option of warehousing of your tax debts. Revenue is allowing businesses to hold off paying VAT or payroll taxes without incurring fines. We expect they will start getting in touch with businesses towards the end of the year to set up repayment plans for any deferred payments. Once such a plan is in place, you’ll have to also keep up to date with your current tax liabilities.
If you’re looking to build up your cash reserves at the moment I think it makes a lot of sense to warehouse your tax debts rather than apply for loans. The longer you go before negotiating your repayment plan, the more you can warehouse. You just have to weigh having debt in the future against your need for cash reserves now. Be sure to continue filing your returns on time, even if you don’t make any payments.
COVID offers us opportunities, too
It’s not all doom and gloom; there are going to be some interesting opportunities coming out of this situation and I’ll look at them in a bit more detail in a future article. One opportunity I see is in outsourcing. As businesses take sensible cost-cutting measures, they will be examining some of the more expensive outgoings they have, such as consultancy. Where they may have previously worked with top-tier firms, they will look instead at cheaper options, giving tier 2 or tier 3 consultancies the opportunity to grow.
There’s a lot of talk in the media about how office life is going to be changed forever. There are lots of circumstances where employees will simply perform better in an office, so I don’t think this change will be universal. But I do believe that how a company uses its offices more generally will evolve. We will probably see businesses operating out of smaller spaces than they used to and offering more flexibility to employees. There’s going to be a lot more commercial property available, at more competitive rates. For businesses that know what they want, there are opportunities to be snapped up here. We know several companies that are currently acquiring new locations to open hospitability and other B2C businesses.
There’s no doubt that we are heading into a recession. But your business can survive a recession if you’ve been using all the tactics I talk about such as managing your overheads, outsourcing, having a model that can expand and contract according to needs, being proactive, and using real-time data to inform your decisions. Governments like ours use quantitative easing to get out of recession and it really works. We’ll see money coming from both the EU and the state to soften the recession. It will go to the state departments (education, health, etc.), through agencies such as Enterprise Ireland or the Local Enterprise Offices, and to banks. Public agencies and departments will be well-funded, so you’ll see interesting opportunities coming through in the form of invitations to tender (see the eTenders site).
Overall, I think there will be as many opportunities as threats from COVID, and it’s up to you to find a way forward that works for your business.