How will you emerge from COVID19?
Think back 2 months! Remember all the panic buying and erratic behaviour by the masses. I think the time to sell your Toilet Paper stocks has come.
When we understood the potential negative impact this Pandemic was going to have on our lives people naturally reacted with fear. Governments and Agencies around the world went into “let’s save our people mode’, some more committed than others. Businesses also had to bunker down and look at how to deal with the Government imposed restrictions and the impact it would have on their existence.
What were your reactions? What coping mechanisms did you fall back on? What every business has experienced is a stress test. COVID has highlighted weaknesses and strengths across all aspects of the business. The most telling are the financial strength, the client relationships, and employee value.
Some businesses have benefited from COVID-19, some have had to find alternative markets or client solutions, and some are weathering the storm, and unfortunately some will not survive.
The next major transition will be coming out of COVID-19 and this will also stress test your business so get ready.
If you’ve had an increase in business volume have you analysed whether this is a spike or sustainable?
Have you gained a new client base or are they clients of convenience?
If this is a short-term gain, have you taken steps to manage the downturn in sales or volume?
If you’ve pivoted, is this for the long hauls or was it a reaction to the situation?
Will you need to re-pivot back to your core business or have you created a new fan base?
The thinking and planning for these situations are not unlike any other, but for the fact that we do not have a clear idea of the timing of the exit. Could we have a second phase, will Governments change their approach to funding?
There are some steps that you need to take to make sure you have all these situations covered. The one thing I am certain of is in the Service industry that even though Social Media has been at the forefront of peoples’ minds when it comes to promotions, sales and marketing, it is NOT the panacea to all of our woes. Social Media is INFORMATION and we still need to develop RELATIONSHIPS, so we can COMMUNICATE. If one thing is clear from Social Distancing and being isolated is, we crave for the connections.
Building Relationships with your Customers
I know lots of businesses have used this ‘down time’ to improve their processes. These are important and I advocate for this all the time, however, right now the focus should be on reconnecting or upping the connections with your client base.
I’m not talking about sending out yet another email blast, I’m talking about a deliberate process of speaking with your key customers, influencers and suppliers. Naturally, the nature and size of your client base will determine who you speak to first and the frequency.
The conversation is not about ‘what can I sell you’. It’s about continuing or in some cases re-building the relationships. What can you do to help your relationships over the next few months as we all emerge from our caves?
Is your Cash-Flow in Order?
The one thing that COVID-19 has done is highlighted the need for having Plan A, B, C, D, and then some. No-one could have predicted COVID-19, but we all could have predicted the possibility of a business interruption for 2 or 3 months. Many businesses, including some of the largest in the country, had no answer to the downturn, other than ‘let’s get rid of a bunch of people so we can protect our bottom line’. Never a great strategy as it clearly demonstrates a lack of planning and poor management practices, plus a total anathema to the statement, “Our employees are our greatest asset”. More of that later.
Having a Cash-Flow plan in place is an essential planning process and you should be speaking with the advisers who can help you in this process.
In a corporation the Chief Financial Officer has this responsibility, in small business the owners rely upon their Accountant for this advice. All accountants provide Financial Accounting as a part of the Compliance regime, however not all provide Management Accounting which is the strategic planning of finances. Most small businesses can not afford to have a full time CFO which is why this is out-source to Freelance CFO’s or to a section within their Accountants practice.
Systemise your process with purpose
The often under-utilised cost reduction strategy by small businesses is investing in streamlining the day-to-day processes. Many businesses used COVID to look at their processes to find more with less. The value of improving processes has a significant effect on productivity, customer satisfaction, employee satisfaction and business value and sustainability.
But most people focus on the financial only, so let’s indulge this group with a simple example. Take a business with 1 owner and 8 staff. 1 owner, 2 Sales, 2 Admin (Customer Service), 2 Accounts (Invoicing, Payable & Receivable), 2 Stores/Warehouse.
Let’s assume each employee works 35 hours per week, 48 weeks per year at an average salary of $40,000. Each employee is being paid for 1,680 hours per annum and let’s assume they have an average running rate (efficiency) of 80% (Therefore 1,344 hours capacity). Your employee is costing you an effective rate of $50,000. Over 8 employees this is an $80,000 per annum lost productivity cost.
If you improved your average running rate to 85% by having systemised processes that make it more efficient for your employees to process standard and routine practices, then you will have increased your employee effective rate to 1,428 hours or an effective cost of $47,000 pa. An annual improvement of $24,000 ($3,000 per employee savings x 8).
This means that the break-even point for investing in each of your employees to improve processes and their efficiency is $3,000 with a 12 month ROI. And this does not include any Taxation benefits.
So, is it worth investing in your people and processes? I’ll let you be the judge.
Engaging with your Employees.
Most businesses have had to lean on their employees in some way. Those that were laid off have obviously been under financial pressure, those left in place may have also had their salary affected, some may have been asked to do more for the same compensation.
Obviously, some businesses had very little option to close, like hospitality and tourism and others, but it was how they processed this and communicated with their employees that will tell on the other side. I have no doubt that if an employee was invited back, they would jump at the offer, they mostly have no choice, but if the employers’ attitude was callous or uncaring, then I predict the employee will jump ship at the first opportunity. Treating your employees “as the most valuable asset” and believing in this statement has an unreasonably high impact on the increased value of the business.
The substantial cost of losing an employee
Naturally through COVID some employees have themselves pivoted or found an alternative lifestyle and will not return. For those employees who come back begrudgingly because “they have no choice” could eventually leave or worst still, stay and be or continue to be disruptive. So recruiting the right people and treating them fairly is critical to the success of any business in any period of any cycle.
Let me address the financial impact for the nay-sayers. The cost of losing an employee is approximately 1.5 times their salary. There are plenty of surveys to support this statement (just Google it).
The costs of losing an employee are:
The replacement recruitment cost (advertising, CV selection, interviews, reference checks);
The onboarding cost (unproductive establishing time, administration, IT and personnel management time).
The salary paid to the new employee whilst they are not yet productive.
Management’s time to bed down the employee;
The cost of getting the selection wrong is even more catastrophic with all the above to replace the replacement and the then the disruption to operations.
What do you need to do to stress test your business as you emerge from your COVID Cave.
COVID-19 has identified weaknesses in businesses, is your business stress tested for coming out of COVID?
Do you have your financials in order?
Have you optimised your workflow practices?
Can you demonstrate care and engagement with your employees?
Are you confident your hiring strategy is not costing you money.
Inspiring Business works with Businesses to create processes with purpose to support a sustainable growth and build a culture of loyalty and trust. We don’t have all the answers which is why we associate ourselves with a variety of professionals from a types of industries.