Looking to the future – risk and resilience

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A risk is the possibility that something may not go as planned and involves uncertainty about the effects or implications, often focusing on negative or undesirable consequences. I expect that, apart from a select few in the health sector, the majority of business owners and managers would not have contemplated the risk that a global pandemic would force the sudden closure of their business for weeks, forcing them to manage ongoing costs and staff, all with a significant reduction in, or lack of, revenue.

Now that this unforeseen event has crystallised into your number-one issue, how are you going to respond in order to minimise the short-term negative impacts and implement a strategy that will have a long-term positive impact on your business?

A key message throughout these last weeks has been to look after your people. As a business, your people are your greatest asset. Retaining staff has been a financial challenge for most businesses at this time. Businesses should ensure that they have explored what government assistance may be available to them. Staff will be key to being prepared for, and taking advantage of, future opportunities as we progress through to level 2, and eventually to level 1.

Cashflow is key to sustaining business operations. Preparing a robust cashflow forecast and talking this through with your bank is important. The more prepared you are to talk with your bank the more receptive they are likely to be. Key things to consider include:
• Create a range of scenarios (at least three), based upon optimistic to pessimistic outlooks.
• Outline what measures you have taken to manage cash flow.
• Identify any surplus assets that could be converted to cash.
• Focus on short-term rolling cash forecasting.
• Identify key suppliers and critical payments.
• Establish supply chain visibility in order to manage delayed lead times and demand volatility.
• Assess whether there is an opportunity to negotiate pricing or fixed costs such as rent.
• Review any funding covenants and renegotiate.
• Consider salary cuts.
• Review discretionary spending.
• Small business owners should review the level of drawings or dividends that they take out of the business.

Communicate with your employees, key customers and suppliers, and your bank on a regular basis. This will provide confidence that you are managing the situation and is likely to put you in a better position once lockdown restrictions ease. Talk to other business owners and operators. Find out how they are dealing with the current situation and consider whether there are ideas you can adapt and apply to your own business.

Identify and manage your operational risks and ensure that your employees can work safely. Ensure that you have a Covid-19 safety plan in place, along with robust health and safety processes and practices that align with your industry requirements under each Covid-19 alert level. Templates and guidance are available on the Worksafe website. It is up to each business to self-assess whether you can operate safely for both your customers and staff.

Adjusting your business operations to the new economic and business environment will require ongoing flexibility to manage the impacts of the different Covid-19 alert levels and a level of uncertainty of the effects of Covid-19 on the economy over time. Consider the impact of maintaining social distancing on productivity and day to day activities.

Consider a change in focus from areas of the business where there may be lower demand into more productive areas. This may require training employees to cover skill gaps in the more productive areas of the business. Where you have seen a reduction in revenue from an industry sector particularly affected by Covid-19, consider your options for replacing that revenue from those industry sectors that are less affected.

Take the opportunity to review your business costs. In good times, businesses can support discretionary spending. Focus on minimising expenses that are not directly related to producing your core product or services. You may want to review your expenditure approval levels to ensure that expenses are minimised in the short-term.

Take this time to review your business operations and identify any efficiencies you can make in order to reduce costs, improve customer interactions, and whether digitisation and automation solutions could have a positive impact on your business.

Covid-19 has presented significant challenges for many businesses, but it will also create opportunities. Having a robust Covid-19 response plan will enable businesses to work through the related issues as they arise and be in the best position to take advantage of opportunities that are created.

Use the lessons learnt from the Covid-19 pandemic to build resilience within your business. Review your strategic risks and build in the impact from the changes to our economic environment, both locally and globally.

As we move from level 4 to 3, we can see that there is light at the end of the tunnel, take every opportunity as you head towards it.

Further information on managing Covid-19 impacts is available at www.pwc.co.nz/publications.

The comments in this article of a general nature and should not be relied on for specific cases. Taxpayers should seek specific advice.

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About Author

Aaron Steele is a senior manager at PwC Waikato. Email: aaron.steele@pwc.com