During times of adversity we are often forced to think outside the box – to reinvent the way we work or behave, We see four main opportunities for you to reinvent your business.
The need to innovate
The first opportunity to reinvent is to innovate. The Oxford Dictionary defines innovation as ‘the introduction of new things, ideas or ways of doing something’. An example of this is introducing a new product line or service.
The need to re-engineer
The second opportunity to reinvent is to re-engineer. The Cambridge Dictionary defines re-engineer as ‘to change and improve the design of a product or system’. In other words, use what you’ve already got to produce something different.
The need to adapt
The third way to reinvent your business is to adapt or change the way you deliver products or services. The biological definition of adaption is the process by which a species becomes fitted to it environment. In other words, if we take the new normal, or new environment that we find ourselves in, how can we change to suit that environment better?
The need to widen your lane
Widening your lane means to broaden your product or service offering. For example, the café who broadens their offering from purely cabinet food and coffee to include new ready made meals, boxed sweet treats, to selling wholesale ingredients and even ingredient bundles with recipes for making their signature treats.
So, with these four ideas in mind (innovation, re-engineering, adaptation or broadening your offering) what can you do in your business? This is what business planning is all about.
There’s a natural order in which to reinvent you business. With business continuity planning, we asked you to put the oxygen mask on yourself first. Business recovery planning is no different.
Your personal budget
So step one is to put your shareholder or owner hat on and define what you need to get from your business. Can you make savings in your personal spending to reduce the cashflow strain on the business?
No doubt you’ve made savings during lockdown- can these savings continue?
Updating your personal budget I best done using a template so that you don’t miss any expenses. An easy way to do it is to simply look at your bank statements online to see what you typically spend in a month.
Of course, you need to be realistic too as lockdown was very different as spending opportunities were very limited so make sure you go back 3-4 months to review your expenses.
Your revised business budget
Once you’ve done your personal budget, you can build up your revised business budget. You may have already done a business budget for this year, but this is likely to change significantly now.
What to include in your revised business budget:
- Gross Revenue
- Gross Profit
- Gross Profit %
- Net Profit before tax
- Net Profit after tax
- Drawings ( not included in wages)
- Asset purchases/(sales)
- Loan principal repaid/(drawn)
- Other cash movements
- Increase/(decrease) in cash
We recommend what we call a bottom-up process, where you start with the increase in cash you want to achieve for the year. It’s important to start here as many businesses have found that they didn’t have a sufficient ‘war chest’ of cash going into the lockdown.
- Other cash movements – you may be able to free up cash by reducing debtors, stock, or work in progress levels or by negotiating better terms with suppliers.
- Loan principal – you need to allow for the principal repayments on existing and any new finance.
- Asset purchases / (sales) – there may be new assets you need or obsolete ones to sell.
- Drawings – here’s where you add in your personal budget from the previous slide.
- Net profit after tax – adding or subtracting these items gives you the target profit after tax you need.
- Then add in what the tax will be to get your required profit before tax.
- Then have a careful look at your overheads to see if savings can be made.
- Now you’ll have your gross profit needed.
- Using your desired gross profit percentage, you can derive the sales level required to give you what you need from the business.
- Then it’s all about reviewing these numbers and margins to ensure you can come up with a workable revised budget.
Ideally, from here you’ll then complete a more detailed forecast on a month by month basis so you have a basis from which to track your progress.
What to measure and how
We strongly recommend you measure no more than five of your most important numbers- we call these Key Performance Indicators (or KPIs). Some examples are daily or weekly sales, gross profit by product or service, debtor days or increase or decrease in cash for the month.
Once you have the KPIs and the budget, it’s important to have these numbers loaded into your monthly reporting system so you can track your actual results to your budget.
We can help you with the most appropriate technology to use for your business.
Once you know at a high level what your budget is, its time to look at the opportunities that exist to achieve that budget.
Again, we recommend focusing on no more than five key opportunities.
Opportunities may be things like working in more of an online way with your team or customers. You may no longer need the same premises or you may need to re-define the roles in your business. There may be new lines of revenue to pursue or other businesses to acquire.
Other opportunities might be around the adoption of technology or systems to improve your efficiency or online communication.
Vulnerabilities and most critical challenges
Of course, the flipside of opportunity is your vulnerabilities.
What are the five biggest vulnerabilities in your business right now? They could be things like poor cashflow, a sustained downturn in demand for current products or services, poor debtor management or banking covenants not being met.
Once you have identified your five biggest opportunities and five vulnerabilities, you need to identify your 2-3 most critical challenges. These might be things like deciding whether or not to sell or liquidate part of the business or establishing an online sales platform or securing sufficient finance to trade through the next 3-months.
Identifying and managing risks
We strongly recommend that you do a careful analysis of all risks in your business. The best way to do this is to complete a Risk Register which assesses the likelihood of each risk and then the consequences for your business if that risk is not mitigated.
Risks fall into the following 10 categories:
- Governance – risks include poor planning, lack of up to date policy, poor discipline around working on the business.
- Leadership – risks around communication, reporting and team morale.
- Products / Services – risks around lack of adaptation or innovation.
- Operational – risks around suppliers and supply chain, contracts and key customers.
- Marketing – risks including poor return on investment or overspending / lack of digital presence.
- Sales – the need to adapt to ecommerce or online selling, risks around poor training or over-selling in these difficult times.
- Finance – undercapitalisation, lack of sufficient cashflow, poor financing structure or poor credit control / debtor management, poor reporting / lack of forecasting.
- HR – overspending, poorly managed restructuring, grievances.
- Admin – lack of automation.
- Technology – poor adaptation of software or apps.
Goals and actions
Once you’ve identified the risks you need to pull everything together into a cohesive plan with goals, actions and responsibilities.
Your Business Recovery Plan is much more detailed than your Business Plan, in that you get right down into the detail for each department of the business.
Goals need to be SMART and all actions need to be assigned to someone responsible.
These goals and actions should be updated regularly through some form of regular review process – at this time we’d recommend a monthly review for at least 6-months and then a change to quarterly after that.
Pulling everything together as a complete package
Depending on your circumstances your package should include:
- Your personal budget.
- Your risk register.
- Your business recovery plan.
- Your business forecast.
- An updated organisation chart (if you have a team of people) and, if applying for finance.
- A finance application.
You may not need to do all of this work at the same time. For example, you may have sufficient cashflow now so you don’t need to apply for finance. Likewise, if you don’t have a team, you may not need an updated Organisation Chart.
What is important is that you establish what is right for you – what combination of these you need and who will do them?
Your next steps
So what are your next steps from here:
- Doing nothing should not be an option – we are entering into a period of business as not normal. Doing what you have always done is unlikely to give you the same results as you’ve had in the past.
- Remember to put the oxygen mask on yourself first – the more sustainable you can make your business right now the better for everyone.
- Make a plan to get through these challenging times.
- Focus on what you can do as opposed to worrying about what might happen in the future.
- We are here for you and want to help.
How we can help you
Our recommended strategy is to complete a Business Recovery Plan.
So, if you haven’t yet done your Business Recovery Plan, now’s the time to do this as it will form a great foundation from which to build your cashflow improvement strategy. It will also help with loan applications.
We have a couple of options to complete the plan are:
- We’ll send you in-depth pre-work to complete so you have time to consider the impact Covid-19 has had on each department of your business. We’ll use your completed pre-work to guide us through the plan and set goals for each department. This ensures you have a detailed and well thought out plan to give your business the best chance of recovery.
- Another option is a Complimentary Business Recovery Review. We’ll send you a Business Recovery Action List to complete, which is a condensed version of the plan. This option suits those of you who may have a small business that doesn’t require a comprehensive Business Recovery Plan. Once you’ve completed the Action Plan, we’ll schedule a 15 minute call to review your plan and next steps. The risk with this approach is that, with everything else going on right now, you may not get around to doing the work.
- If you’re unsure on the best way forward, or you want to talk to us about how we can work together, we recommend a complimentary meeting to discuss your goals, current problems and challenges. We can then agree the best way we can support you.
If you are going to need to obtain business funding, we believe its VITAL that you prepare a cashflow forecast. The loan needs to be repaid, so your business needs to generate enough profit, to then convert into cash to make the repayments.
We know it may be difficult to commit to spending money right now. We have different payment options available, so please don’t let cost be a barrier. Get in touch and we can work together to come to an arrangement you can mange.
We know that the benefits you will get from these services will be far greater than our fee – most importantly, it’s about helping you as quickly as possible and ensuring we are working with you to build a stronger more resilient business.