May 15, 2020
The following provides some insight from the business impact survey that we had sent out, as well as some things to consider in moving forward from the COVID-19 pandemic.
It was interesting from the survey that Optimistic and Cautious were both in the top few words that respondents used to describe the COVID-19 outlook, both personally and on the impact on business.
From the survey that we had sent out, 81% of respondents had indicated a decrease in revenue, with over 60% of respondents also indicating a disruption in supply chain, whether it be increased prices, longer delivery times, product availability or ordering constraints, or changed payment terms (such as deposit requirements). A theme coming out of this is the importance of profitability and cash flow management. Both of these have a critical impact on the short and long term viability of a business. The first step in improving both of these areas is knowing your numbers, as this will allow you to be able to measure improvement. Here are just a few ideas to consider when it comes to profitability and cash flow:
Profitability
§ Look at your prices
· If this is not something you do regularly, there may be some room for price increases. Be mindful of how this is done and how it may be perceived by your customers, and communicate accordingly. Consider testing different price adjustments.
· Are your prices competitive? Be sure to be tuned in to your market and your customers. Prices may have to be adjusted downward in some situations.
§ Look at your costs
· Look at each expense line on your income statement, determine what the drivers are behind those costs, and how you can impact those drivers.
· Look for ongoing costs for things you do not need (extra phone lines, unused subscriptions, etc.).
· Now may be a good time to compare costs from different suppliers, and possibly negotiate better costs with suppliers.
· If your business involves high sales volumes, consider looking at any variable costs to see if there are cost saving opportunities by moving to fixed costs (e.g. paying a monthly credit card processing fee in order to decrease your per-transaction fees).
· If you sell high volumes of product, look for volume purchase discounts from suppliers.
§ Look at reducing waste in your production and operations. Here are some key areas where you can identify waste in your operations (using the DOWNTIME acronym):
· Defects – These require extra costs and time to resolve, and can include product defects, as well as things like incorrect data entry. Rework becomes a key cost here.
· Overproduction – This happens when too much of something is produced, or is produced too early. It often causes additional waste in the form of transportation, inventory and motion (see below). This can be reduced in areas such as unnecessary printing and filing of documents, or overproduction of inventory for current demands.
· Waiting – Reducing wait-time in production and processes can have a significant impact on profitability. Looking closely at different processes to reduce waiting can help identify small changes to make that may yield big impacts when it comes to cost savings.
· Non-utilized talent – Better utilizing the talent of your employees will lead to greater profit and also result in a more rewarding work experience for your employees.
· Transportation – Unnecessarily moving products or items from one location to another, or further than necessary, costs both time and effort, and can cause product damage.
· Inventory – Extra inventory that is not needed ties up both space and working capital that could better be used for other opportunities. Extra inventory also has the risk of becoming obsolete.
· Motion – Reducing unnecessary movement could save considerable amounts of time. This can be done by keeping materials, tools and equipment easy to find, so people spend less time looking around for them, and minimizing redundant activity (such as entering the same information in multiple places).
· Extra-processing – these are additional activities and costs that provide no additional value.
Customer Service
§ Maintain contact with your customers. All business involves customer relations and keeping in contact is one of the best ways to retain your customers.
Cash flow
§ Be mindful of inventory. Storing more inventory than is needed ties up cash that could otherwise be used for other operations. There are ways to optimize inventory purchases based on anticipated demand.
§ Negotiate terms with suppliers. Rather than paying suppliers and vendors up front, see if you can pay in 15, 30 or 45 days.
§ Look at how quickly you invoice customers, or how you receive payments. Consider accepting e-transfer or credit card payments to increase how quickly you may be paid.
§ Are there purchases you are considering that have a lease option rather than a purchase option? While these options are generally more expensive than purchasing, they do provide benefits for cash flow if needed.
§ Consider offering a discount for customers to pay early.
As some options for considering cash flow improvements impact profitability, both profitability and cash flow should be assessed together in order to strike an optimal balance.
We suggest the use of the following tools as you work to improve profitability and cash flow:
o Budgets
o Cash flow forecast
o Key performance indicators (KPI’s) to track improvements
§ Want to know how your business compares to competitors? Industry Canada has financial performance data for more than 1000 industries that you can use to benchmark your performance.
Application
§ Apply your efforts in the order of where you will get the most efficient and the most effective results.
§ Your time is valuable and applying effort for little result is in-efficient.
If you have questions about your profitability or cash flow, please give us a call.
Here is a snapshot of some of the other survey results. We will continue to send more of these details out.
74% - businesses accessing some form of government financial support
71% - respondents who say this has impacted the longer term plans for their business
62% - businesses that have looked at their budget and/or cash flow forecast for the next 3 – 6 months.
45% - businesses using virtual meetings (among other methods) during this time to connect with customers
26% - businesses that have focused on developing online/website capability of their business during this time
24% - businesses with employees that have furloughed or laid off all or some employees due to COVID-19
· Note: if you have employees who are collecting CERB payments due to furlough/layoffs, they can still earn up to $1,000 for each period they claim the CERB, and still receive the CERB benefit. This may impact some of you who have employees that have expressed a hesitance to work part-time for fear of losing the CERB benefit.
23% - businesses considering new software implementation during this time
Here are some ways survey respondents are engaging and supporting employees right now:
· Work from home options and support
· Accommodating workplace for physical distancing, including space and flexible schedules
· Zoom check-ins with staff
· Maintain benefits, even if employees are not working
· Providing personal protective equipment (PPE)
· Virtual pub nights
· Buying groceries for employees who have been laid off
· Establishing a buddy system to keep employees connected
· Discussing how the business and its employees can have an intentional positive impact on clients
· Employee personal development and training
· Trivia contests in order to get to know other employees better
· Phone calls to connect with employees to see how they are doing
The information contained in this communication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.