Over the years, many firms have invested considerably in business continuity planning in order to keep their business operational in times the crisis. The truth is, however, that few ever thought that they would have to resort to such contingencies.
The novel coronavirus COVID-19 is causing businesses around the world to experience major falls in demand for their products and services, and face supply chain disruptions.
At this stage, nobody has a clear picture of what the Coronavirus means for the economy. We have already experienced significant disruption to the hospitality, aviation, education and retail sectors. Other sectors are not immune, including elements of the remote gaming sector. If nothing else, the current crisis serves to reaffirm the fact that the global economy is a complex ecosystem, and that business leaders, including those in Malta, need to think through their own risks and interdependencies, in order to ride out the storm.
Of one thing there can be no doubt - the COVID-19 pandemic marks the return of “cash is king”. Cash and headroom are critical to businesses, not just to maintain operations but also to ensure their future sustainability. Whilst revenues are being severely impacted as a result of this crisis, overhead costs, including wages and salaries, remain fixed. It is evident that business leaders must shift their immediate attention from profitability to cash flow.
Forecasting cash headroom will be essential for most businesses to survive the crisis, the effects of which will probably last for a longer period than expected. This will enable businesses to take timely decisions within the short to medium term horizon. As a business, you should already be reviewing your forecasts and major assumptions to determine the impact on cash flow and balance sheet. These forecasts should be regularly updated as better visibility of the impact of the crisis starts to come to light. Given the uncertainty, you should also carefully consider investment considerations until the current situation stabilises.
In the meantime, take advantage of government support. Governments across the world have announced stimulus measures to support businesses during this crisis. In Malta, meaningful government aid will be inevitable for many sectors to safeguard both investment and employment. Government and related entities should, for starters, expedite the payment of outstanding debt to the business community, thus injecting further liquidity into the ecosystem.
Government support measures should be directed to address cash flow and liquidity issues (both short and medium-term). In reality, quick and simple accessibility to these measures is more important than their availability. Financial institutions, while managing their risk (not just short term), would be wise to follow suit. In this regard, the government’s strategy should focus on ensuring that Malta exits the crisis with a socio-economic environment that while bruised, can still stand.
Take the opportunity to re-evaluate your key processes, based on what your customers need right now. Some businesses have already identified or are in the process of identifying alternative service delivery models, such as home delivery. Although issues in the supply chain may slow down this process, businesses should not overlook the importance of a longer-term outlook on these options.
Many organisations, especially those who have had the foresight to invest in technology, have resorted to home working. These arrangements will have a positive impact on how businesses will operate in the future. They will also result in new challenges. The duration of measures related to COVID-19 may take longer than expected. It would also be wise for businesses not to underestimate the importance of human resource management throughout the process, especially when fatigue starts to kick-in.
Not all businesses will be affected by the pandemic in the same manner and with the same severity. Few businesses, if any, will be left unscathed as the domino effect kicks in. This is a time, indeed an opportunity, to view matters from a wider perspective, as a corporate citizen, demonstrating both business and social solidarity. Being proactive and thinking out of the box, within a strategically focused context, should also be the basis behind immediate decision making. The adage that every cloud has a silver lining will not apply to all firms in an equal manner. It may, however, be true in many more instances than initially thought. Invest your time in looking for that silver lining. Those entities that are fast enough to manage the upside and adapt, will in all probability exit the crisis in a leaner yet more resilient manner.
This article first appeared in the Times of Malta online on 29 March 2020.