Why Change?
Entrepreneurs are used to live emotional rollercoasters as all businesses face UPs and DOWNs. In normal times most companies are able to respond to sector turbulence through a variety of strategies as part of their business life, coping effectively with transformation and disruption. Today we experience a critical moment in any businessman’s life: COVID-19 has done damage in the P&L statement and Balance Sheet of virtually all sectors across the planet. Whether you run a factory or provide services to business or consumers, you have most likely been hit by this black swan event. Some impacts are more acute depending on the industry and may be life threatening for your business.
When your leitmotiv is to merely be ‘stay alive’, change must be dramatically accelerated. The Business Transformation must be operated in crisis mode because of near-term critical impacts. Then there is clearly urgency for prompt decisions and courageous actions to be taken.
But you must first have an honest view on the financial health of your company before COVID-19 in order to apply the appropriate remedies.
How to assess the health of your business prior to COVID-19?
A good approach is to look for symptoms, especially cash situations generated by increasing gaps in accounts payable and accounts receivables, shortage of supply, dropping sales combined with high structural costs? Higher debt burden. The followings one prove a good test:
- Profitability : How did it evolve over the last 3 years? Flat, decreasing? Possibly negative for 2 years in a row?
- Debt ratio : Is it worsening? Close between 80 and 100%? Possibly exceeding 100%
- Liquidity ratio : Below 0.7? Below 0.5?
- Shareholder equity : Have there been consecutive drops? Is it below 50% of the capital?
- Debt to NSSO or tax authorities : You find your self in a position where you cannot satisfy those creditors?
How to assess the impact of COVID-19 on your business?
If there were already some early warning signals that your business was (going to be) facing some difficulties COVID-19 may have turned things worse.
It is then utmost critical is to have a clear and objective view of the COVID-19 impact. Is it only short – medium and/or long term? And to have a view on the following question : Will I be able to navigate the crisis?
How to respond to your current situation and the impact of COVID-19 – if relevant- on your business?
You should be ware that the most traditional reaction in times of crisis is denial:
- „We just got an order last week, so things are turning“
- „This feels like the last downturn; we’ll come back eventually“
- „My team agrees this will resolve the issue“
- „We need to study this more before we act irrationally“
You face the double challenge of more than ever rationalizing and speeding up the fact collecting and the decision making processes. In ‘normal’ turbulent times you are used to develop a step by step strategy to get out of the danger zone. In crisis time you need to switch to crisis mode as time becomes your enemy and as too much information kills information.
Several companies have used the crisis as a catalyst for needed structural change and have accelerated the implementation of transformation projects during the first half of 2020. Why don’t seize this opportunity?
