You may see click-bait stories about “COVID-proofing” your business.
If what Italians have experienced during their nation-wide lockdown is any guide about what might be coming to the Yukon, “proofing” yourself against the business effects of the virus is wildly optimistic.
It’s more prudent to think about risk management and how to make your business more resilient.
Now is not the time to panic and do the business equivalent of buying the entire territorial stock of toilet paper. Instead, it’s about soberly thinking through potential scenarios and how to prepare yourself.
Most business owners will need to dial up their approaches to contingency planning. Many have looked at scenarios with a bad year where revenue goes down 10 or 20 per cent. Or maybe a key employee leaves.
But what if you have to close your doors for six weeks, or a quarter of your staff end up in self-quarantine or the hospital? Including, and sorry to say this, you?
As you do this, you may have to question some of your most basic assumptions. It must have seemed unthinkable to Italian restaurateurs that the government would shut down every restaurant in the country for two weeks.
Your conclusions at the end of your contingency planning may be unwelcome. If your business was already struggling, you may need to ask some tough questions about whether COVID-19 will be the steel I-beam that breaks the camel’s back.
So what should you do?
The first thing is to act now. The sooner you figure out your plan, the more ready you will be. You can’t undo the big inventory order you placed in January, but you can stop the next one. Now is the time to clear your calendar, turn off your cell phone, get your key advisors in a room and figure out your plan.
The first step is what they call business continuity. The Yukon Chamber of Commerce’s website has links to useful checklists from the Canadian chamber, and Small Business BC also offers a handy one-page guide.
The questions start with serving your customers. Do you have enough inventory? And what parts of your supply chain are most vulnerable to shortages? Can you still sell and service clients with reduced staff and locations? Have you spoken with your top clients, suppliers, bank and shareholders to minimize surprises?
The planning also includes critical internal questions. Are you actively leading your staff in following health guidelines such as hand-washing and social distancing? Have you adjusted your guidelines around working from home to accommodate staff in self-isolation or dealing with an infected family member? Are there critical business processes where only one person knows the systems and passwords?
Next, it’s time to think through the financial implications for your cash flow and balance sheet.
What are the potential impacts of COVID-19 on your revenues? This will be very different for hotels and tourism businesses compared to a consulting operation, for example. If your traditional sales channels are at risk, what are alternatives? How can you ramp up your online sales and direct delivery to clients? Are there new products or services you could offer to help your clients cope with their own COVID-19 challenges?
For example, some of the big global food delivery companies have already announced “no contact” deliveries where payment is digital and the food is left on the customer’s doorstep.
Acting now on this is important, especially if your existing client base is used to visiting in-person. You may have a few weeks to educate them on how to do business with you online or by phone before the in-person visits dry up.
You’ll also want to forecast how all these revenue and cost hits affect your cash flow over future months so you can avoid any cash crunches.
Studying the balance sheet is often neglected during emergency planning, even though it is often the most critical part of surviving a crisis.
What can you do to adjust inventories and working capital? You may wish to slim down some inventories, but you also might want to stock up on critical items. Asking for bigger deposits or pre-payment for large orders may make sense.
What is your debt situation? What are your options to extend repayment terms? Do you have a cash reserve and access to lines of credit? Are there major asset purchases you need to reconsider, or maybe asset sales you’ve been thinking about? It might be time to pull the trigger.
The Bank of Canada announced an emergency rate cut of half a per cent last week, but with its policy rate now down to 0.75 per cent there isn’t that much room for further cuts. This week the federal government announced it would give businesses until Aug. 31 to pay their taxes, plus $27 billion in direct support to individuals and businesses. This includes business lending from BDC, a temporary wage subsidy to make it easier to keep staff employed, as well as other measures. Payments to individuals, including liberalized Employment Insurance rules and special payments to lower-income Yukoners, will also help support customer demand.
The federal government has also been working with Canada’s banks, and says that “banks in Canada have affirmed their commitment to working with customers to provide flexible solutions, on a case-by-case basis, for managing through hardships caused by recent developments.”
Finding out how these programs work and applying quickly if you qualify is important.
Depending on how the virus develops, there may be more relief announcements to come. The federal government is in strong financial shape. The Yukon government already spent our rainy day fund, as discussed in last week’s column, but still has room to borrow in an emergency.
Such measures will be helpful, but may not be enough depending on your situation. They aren’t likely to be big enough if you have a massive drop-off in sales or a big debt payment coming, for example.
This is just a sampler of things the savvy entrepreneur will want to be thinking about. The most important thing is your health, and that of your family and employees. But remember that early and decisive action can help your business survive the crisis too.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.