5 ways to protect your business during times of uncertainty
Uncertainty may well prove to be the bi-word of 2020 – in our personal as well as our business lives. The pandemic and Brexit have combined to make us all wonder what we’ll be waking up to each day; what our ‘the new normal’ of the hour will be.
One cliché we can embrace is ‘taking back control’ – because that is exactly what uncertainty takes from us. We especially need to resume control of our businesses, because so much surrounding them is unpredictable.
We’re talking to our customers on a daily basis, listening to them, understanding how their sectors vary from others, and have drawn up the top 5 ways they’re protecting their businesses during today’s uncertainty, the like of which we’ve never seen before.
1. Diversify your revenue streams
Back in 2011 the authors of a study called ‘Diversification Reconsidered’ couldn’t have imagined what we’re going through now, although they had emerged from the crisis of 2008 having seen catastrophic failures in commercial and not-for-profit organisations. They concluded that by “establishing and maintaining multiple streams of funding… organizations are able to avoid excessive dependence on any single revenue source, stabilize their financial positions, and thereby reduce the risk of financial crises”. While it’s a defensive strategy to help you ride out the crisis, diversification can also be an offensive move to generate more profitable opportunities.
Diversifying doesn’t always mean being as drastic as turning a factory into a holistic yoga centre. We’ve seen clients reviewing new marketplaces that are more buoyant, looking at online opportunities for their products and services, and partnering with other businesses to enter a new space.
But be warned.
• Diversification can create operational stress at a time when you don’t need it.
• Diversification may require reallocation of cashflow and that increases the risk of failure.
• Diversification can also damage a brand as customers question just what it is that you do.
• And what happens when things return a pre-crisis level?
2. Befriend your customer
In a personal crisis we tend to turn to our friends for help and support. In a business crisis, why shouldn’t we do the same with our customers? They’re a crucial stakeholder in our organisation’s success, and while we’re not going to cry on their shoulders we should maintain or create meaningful dialogue with them. We do with our own customers, and our phones have never been so busy.
Customers need to know they can count on you in a crisis, so that they retain confidence in your ability to deliver. Communication therefore should be empathetic to the circumstances that you and they are facing. It should be consistent and informative, and above all genuine. And it must show evidence that you’re taking things seriously and are interested in both their business and how you can work together to make things better. Show that you’re resilient, and that you’re thinking about new ways of working, being more flexible, or able to offer added value.
And there’s no problem in asking them if you can do anything different to help them right now. They could provide the suggestions that make your business relationship and performance stronger.
3. Streamline your business
Streamlining. It’s an easy thing to say, but a difficult thing to do. And let’s face it, we’re all trying to ensure our businesses run more smoothly right now. The danger that we’re seeing is that businesses are so focused on ‘getting through the crisis’ that they’re not sitting back and looking at the organisation holistically.
During any crisis you should be doing a risk assessment and identifying where any weaknesses (and opportunities for improvement) lie in your operations. That means going through your business forensically, start to finish.
Streamlining is not always about slashing staff costs, but it is an opportunity to make decisions about staffing that are right for the business. Outsourcing for example can improve efficiency as well as reduce cost – when it’s done well. Systems can be inefficient and you may be able to automate repetitive tasks or combine processes to save time and money. This will also enable the staff you have to focus on higher-value tasks. Travel expense can be mitigated by embracing video calls or doing more business locally. We’re doing this, and also donating our travel savings to charity.
4. Have a laser-focused plan of action
Don’t just have a plan. Have a plan on how to create your plan.
Planning is a vital tool that can help you:
• avoid expensive mistakes
• consider all of the opportunities open to you
• identify all the weaknesses to overcome
• allocate roles and responsibilities to the right people
• establish the route you need to take to get things done in an appropriate timeframe.
So make it a good, long-term, well-evidenced strategy that has a clear, achievable objective. Spend the time to get the plan right. And then implement the actions. Too often we make a decision in the face of a crisis without having a proper plan in place.
Here’s a high-profile example of getting it right – and wrong. The Institute for Government published a report on September 1st 2020 on the UK Government’s initial response to the Covid-19 crisis, concluding it “was hampered by the absence of a long-term strategy, lack of clarity about who was responsible for what and its poor use of evidence”. In contrast they also said the Chancellor’s economic support measures were “an example of policy based on clear objectives and developed after working closely with scheme users”.
5. Put trade credit insurance in place
In a way, trade credit insurance was developed exactly because of uncertainty. It is designed to step in when your trade debtors cannot pay their debts, and with forecasts of insolvencies increasing by as much as 43% in 2021 (Euler Hermes) that’s an increasing certainty.
Any crisis squeezes the financial markets. Credit terms harden and business volumes contract. Supply chains are disrupted. Debt extensions and delinquency will be affecting liquidity across the country. The effect is that even the most efficient and successful businesses feel the pinch on their cashflow.
Trade credit insurance can be viewed as a form of financing – among a range of financing options that will both be in huge demand right now and available in diminishing numbers. Commercial bank lending has tightened, and lending institutions as a whole appear more conservative. Investors are reluctant to trade and equity finance options are reducing.
Conversely, the UK Government’s Trade Credit Reinsurance Scheme has backed trade credit insurers to the tune of £10bn – softening their attitude to agreeing terms with customers who want to insure their trade debts. The scheme runs until December 2020, so now may be a good time to protect your trade debt or to offer new terms to customers with more confidence.
Click for more information on trade credit insurance.
Click for more information on the Trade Credit Reinsurance Scheme.