Ross Polvara
What can organizations begin to do? Here is a set of potential actions that leaders must start to plan for and execute on.
MANAGE THE CERTAINTY
It is common for leaders in organizations to invest their time to predict what may happen or how things may be different and what may change in the near term, to create strategic and competitive differentiation. While establishing a strategic advantage by anticipating opportunities is important, the more critical approach in uncertain times is to highlight and manage the aspects we know of with certainty. Most organizations will be able to identify immediate areas requiring action.
In contrast, others will come to the forefront in the next few weeks, as we rapidly adjust to a changing economy. A few certainties all organizations should address now include:
- How do we change for a loss in revenue?
- How do we adjust for the resultant financial impact?
- What do we do regarding our people?
- Our operational needs are changing what do we need, and
TAKE CHARGE OF CASH FLOW
With the disruption of supply chains and anything but normal business operations in effect, cash flow has been and will continue to trend downwards. Organizations should manage cash flow carefully as they look to reduce expenses. Not only should organizations be taking a hard look at the budget, but critically address the near-term inflow and outflow of funds and help prevent or mitigate further negative financial impact. Preparing a 13-week cash flow, by week, is vital during these times of uncertainty, as cash is vital during uncertain times. Sales projections should be realistic and err on conservative as this is the primary element of uncertainty
TIGHTEN THE PURSE STRINGS
If there were ever a time to assess one’s spending, it would be now. Leaders should be taking a hard look at the organization’s budget and resetting near term revenue projections and targets and adjusting expenses. The initial step would be distinguishing between critical costs and then essential and discretionary expenses. Critical expenses are the lifeblood of the organization and necessary to maintain a flow of income and generating future revenue, including inventory and people. Essential expenses will include costs such as rent, communication costs, and insurance. These are necessary to operate, but this is a chance to
evaluate the extent of the need, as well as an opportunity to source alternatives. The final category, discretionary spending, should be curtailed and may include minimizing or eliminating spending categories such as marketing, training, travel, social activities and perks, and even investment in new initiatives.
SECURE FUNDING
To aid cash flow in a volatile market, securing a line of credit is a necessary component to short term sustainability for many organizations. Where the funds are available, they should be utilized and only used for essential expenses. Lines of credit and any loans obtained must be directed toward critical and crucial expenses and not directed toward discretionary spending. Small businesses may be able to take advantage of the proposed $300 billion Restoring Economic Security, Confidence, and User Endurance (RESCUE) Businesses Act of 2020. The proposal would enable Small Business Associations to waive all fees for all 7(a) loans for one year for both lenders and borrowers and provide a 90 percent loan guarantee for all loans, regardless of loan size.
CARE FOR YOUR EMPLOYEES, YOU NEED THEM
Personnel cost cuts will soon be essential for the majority of organizations, many necessitating reductions to remain solvent and operational. However, just a few weeks ago, there was a tight job market with skilled labor in high demand. Being creative in applying personnel cost cuts will be essential from the perspective of maintaining organization culture as well as motivating remaining employees. Individuals may be asking themselves if their industry or organization is both stable and sustainable, or am I better off taking my skills elsewhere. Maintaining strong morale is essential, and even more so, to help in business recovery. Those organizations with strong purpose-driven, human-centered cultures, are likely to recover faster and favorably beyond the aftermath of the crisis. Organizations should look at other practices, including paid time-off, furloughs, reduced workweek, elimination of bonuses, and other opportunities before laying off personnel.
HIRE OUT OF NECESSITY
Now is not the time to be bringing on new people unless they are essential to the current core business. It may be opportune to invest in training or ‘repurposing’ existing employees, especially if roles have become redundant or individuals may have insufficient workload to fill their allotted capacity. No organization should be bringing people on board, especially if there is uncertainty regarding the long-term future of the role in the existing or near-term business climate.
SCALE BACK CAPITAL INVESTMENTS
While we may all want business as usual, the reality is that it is anything but that. Organizations should place a focus on maintaining existing core business rather than capital investment in new projects, capital improvements, and growth into new geographic markets. At a minimum, put these on hold for some time. Opportunities will arise beyond this phase due to changing priorities of organizations and the need for many to get back to normal.
LOWER INVENTORIES
While we may all want business as usual, the reality is that it is anything but that. Looking to adjust inventory levels to meet declining revenue projection will be prudent and will aid near-term cash flow management. While immediate inventory levels may be required in the short-term, depending on the organization or industry, decreasing inventory is necessitated to reduce both immediate cash outlays, but also minimize inventory holding costs and redundancies. Selling excess inventories at a discount is a practice to be considered to help fund core expenses, including overheads and personnel costs.
PLAN for A NEW Normal
The economy and business practices have changed for good. We will be entering a new norm. The full extent of that is unknown. However, the organizations that set themselves up to be agile and flexible, and adapt to changing market conditions and specific industry practices, will rise above and prosper soon. Some of these changes may include the way we deal with clients, the choice and use of suppliers, and even more so the way we work with teams within various organizations. The question every organization will be asking themselves is ‘how do I reach my customers more efficiently,’ ‘is my supply chain well positioned, both geographically and structurally, to best support us’ and ‘how do we optimize the use of remote technologies to utilize our staff better and create economic efficiencies.’
Organizations and leaders are encouraged to act fast and be decisive yet thoughtful in decision making with a primary focus on sustaining the organization and secondly setting the organization up for future prosperity by being leaner, agile, and focused.
