Australian SMEs suffered losses up to 75 per cent during the COVID-19 global pandemic with surviving businesses having to shift their focus to secure their future longevity. As a result, SMEs should take advantage of the recent experience and identify what has and has not worked through COVID-19 and reinvent the business model around those experiences.
Problems with being reactive
Sustained reactive business decisions proved fatal to SMEs during COVID, with the constant challenges of lockdowns and restrictions, resulting in a lack of business certainty. Greater pressures on directors and management saw an increase in poor decision making, the disorganised allocation of resources and difficulties upholding employee morale.
Short-term decisions produced short-term results, placing greater pressure on businesses struggling to survive during a period of severe business disruption.
How to be proactive
SMEs need to plan for predictable and unpredictable future events. Allocating time to work “on” the business and not just “in” the business, is crucial. This encourages management to plan beyond tomorrow through reviewing policies and processes, focusing on improving inefficiencies and developing crisis action plans. It is here that continuous improvement is important. Too often organisations adopt a “set and forget” approach to implementing processes and fail to take the opportunity to continually review and evaluate their effectiveness.
Risks must be proactively identified to mitigate negative impacts. Managing risks involves anticipating or identifying risks beforehand and planning how to react if they occur. When reacting to risk, there is a plan in place that has been thought out well in advance, rather than made up at the moment
Prior to the pandemic many SMEs already operated in survival mode. Cash management extended as far as making sure there was enough cash to pay the bills. Poor planning hit the sporting community hard, with the lack of registrations, fundraising activities and sponsorships resulting in a $1.6bn loss. Consequently, 16,000 clubs were faced with insolvency, sadly, a story many SMEs are now too familiar with.
To avoid this, cashflow should be diligently monitored, assisting with cash generation and preservation. Becoming accustomed to your businesses cash in-flows and out-flows patterns, make it easier for contingencies to be planned for. This is best achieved by having a multi-scenario cashflow budget. It should account for mild, harsh and severe impacts on operating income and expenses, KPIs and employee productivity and morale.
Once developed it must be managed by accounting for working capital, capital expenditure, operating expenditure and balance sheet management. All areas of the business should be involved cross-functionally in these strategies, preventing any weak links. Decisions to spend money should always be assessed against the level of existing reserves, known cashflows and projected profitability.
Redevelop your business model
Business as usual (BAU) should be reimagined, considering lessons learned, the need to remain relevant during and after a period of significant change, and the fact that some things have changed forever. To survive, SMEs need to be flexible enough to respond to changing market conditions, while maintaining a level of activity that secures the viability of the business. By having a nimble BAU, business can quickly adapt to changed circumstances and cope with events that would have previously damaged it.
Failing to plan is planning to fail. To avoid further damage, SMEs must embrace being proactive and use the challenges faced during COVID to learn and grow. Beginning to track cashflows so that contingencies can be planned for and develop a flexible BAU will assist with the unpredictable.
Carl Millington, Partner, Pitcher Partners Sydney