What Did The Pandemic Teach Us About Contingency Planning
The Covid-19 pandemic hit every corner of the world and suddenly paused each and everyone’s life in 2020. Since then, everyone has started to live differently and adapt to unforeseen changes. We can never predict something like a pandemic but it surely has taught us to never underestimate the simple blessings of life. For business owners, of companies both big and small, it has taught us that we need to make a more concerted effort to minimize business risk due to unexpected events, by have a contingency plan in place. As evidenced by the sheer volume of monies dolled out by government’s globally to support businesses, there is still work to be done.
According to a recent news report, Canada’s small businesses collectively took on $135 billion in debt in order to survive the pandemic. Unfortunately, this same debt caused many small businesses to shut their doors as sales did not return to pre-Covid levels as quickly as forecasted. A recent survey by the Canadian Federation of Independent Business revealed more than 200,000 Canadian small businesses are considering closing down permanently due to the novel coronavirus pandemic. Thus, these challenging times teach us to strive for better planning and preparation to tackle emergencies.
Yet while some businesses languished, other flourished. In particular, the ongoing health crisis helped accelerate technological adoption worldwide like never before. “There is no doubt the recession caused by the pandemic, like all recessions, will result in lost capacity and scarring. But the accelerated digital transformation has supported resilience so much that we now think the damage [to the economy] will be less than we earlier feared”, stressed Deputy Governor Timothy Lane on discussing how adopting digital technologies supported resilience during the COVID-19 pandemic.
To keep businesses running with the imposed lockdowns and restrictions, there has been a seemingly drastic shift towards technology readiness with amplified market trends that would have taken decades otherwise and which has resulted in a renewed acknowledgement and appreciation for contingency planning. Experts agree that today, tomorrow or in future, every local or international business will have to face a pandemic and that is why we need to be prepared in order to minimize financial, operational and reputational damage.
Laura Dottori-Attanasio, Group Head, Personal and Business Banking, CIBC said, “Our team is engaged with business owners across the country every day. With so many feeling immediate pressures on revenues, we encourage owners to get advice about their overall financial situation including cash flow management and help managing debt levels. Whether business owners are facing challenges, or have an opportunity to capitalize on, we have the tools, advice and the team to help provide a path forward."
So what steps can be taken and planned for now, to prepare for future unforeseen events?
Use debt as an insurance policy - if your business is healthy, unlevered or under-levered, consider getting an operating line or overdraft facility from your incumbent bank. You may not have to utilize it but applying for a revolving credit facility when things are good is nice insurance to have if things get tough.
Build a Financial Model & Forecast - having a well thought out financial model including a forecast is imperative in today’s business world. Businesses should understand what their break-even margin is, what fixed costs can be (slowly) pared back or eliminated during economic downturns or unforeseen events and know at what point the company will breach its financial covenants if interest rates should suddenly rise due to higher default rates (think Covid-19).
Adopt technology - use technology where you can to streamline processes, reduce costs (labor and operating) and improve the overall efficiency of your company. While the adoption of technology (and corresponding investment spend) will vary between from one company to another, the goal is to adopt over time. That is upgrade as your business grows, as the world changes around you and as the technological skills of the labor force evolve.
Remain nimble - many businesses were able to quickly pivot once the pandemic hit. Many companies shifted to remote working, many laid off staff, or reduced staff hours, to keep their company afloat, many proactively engaged with their clients to ensure needs we’re being met and that sales continued, and some completely retooled their entire business to offer a product that met the needs of the pandemic. Whichever choices businesses made, it was clear that those who acted quickly, with full staff alignment and who harnessed the power of technology fared better than those who did not adapt.
Ultimately, companies with an emergency plan are often better able to pivot their operations soon after an unexpected disaster, thereby avoiding potential losses. As seen during the recent pandemic, without a well thought out contingency plan, companies faced the loss of important resources, inconvenience to their clients and customers, in turn jeopardizing the overall viability of their businesses. Preparing and maintaining a contingency plan helps businesses ensure they have ample resources and data required to deal with an emergency.
If Kaeros can of assistance in the various points discussed above, please reach out. It would be great to hear from you.
Cheers, Trevor
Founder & Managing Director
Copyright 2019 Kaeros Capital Advisors Inc.