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Lockdown, a Recession, but Better to Come?

Cameron Finlay • Apr 22, 2020

A RECESSION WITH A DIFFERENCE!

The last recession was in 1991 (Keating's "the recession we had to have"!).   March is likely to be negative and June could be a big hit due to the business shutdowns.   One resulting factor will be higher unemployment, and it will also be harder to switch jobs.   That leads to lost income and falling wages, which reduces consumer spending power.   On top of that, confidence will be low and uncertainty could stay high.

However, interest rates will stay down for quite a while yet, so it will be cheaper to service loans.   Residential property prices could fall (10% ?), although perhaps not for long if demand returns quickly.   No doubt there are many other factors we could consider, this is not the point of this letter, there will be more negatives   but there are also positives.

This recession is different.   It is not the result of a bust after a boom, nor is it cyclical or structural, it was induced because of a health crisis.   The government acted (surprisingly) quickly with meaningful financial support so more normal functioning is likely to return in a faster time than is usual from recessions.   Other countries are providing business support too, and the IMF expects growth next year above the average of the past few years because it expects demand will quickly return.

Certainly businesses have been hit hard, both large and small, and some sectors harder than others.   However, it is now time to look beyond survival and plan to thrive when the lockdown is over.

THRIVE, NOT JUST SURVIVE!

There are probably five key steps to work through:

Review your Financials

Revenue has taken a hit, some sectors even have no revenue at all.   Consider:

- what expenditures can be cut (be drastic)

- can rent be deferred or renegotiated?

- can tax be deferred?

- what can you do without, no longer need, or could sell? (children? husbands?)

- what government assistance may be available?

- what financial reserves do you have?

- are there loans or finance repayments that can be deferred?

- can you legally access your superannuation?

Cash Forecast

Be harsh in your review, and after you have completed this create a monthly forecast of revenue and outgoings for at least 6 months.   What can be done so your reserves are not depleted?   You are probably already looking at the worst position so to avoid that result the next step is to increase income and cash flow.

(Ask us for a template for a Cash Forecast – or help to prepare one).

Keep in Touch With Customers

Just because there is a lockdown don't assume people won't want your services now.   Even if they don't need your services just now, you want them to remember you when this is over.   Provide information that is relevant to your services and useful to your customers, but don't sell hard or be trite (like telling them how to wash their hands).

Provide content that is informative and useful, and a good reason why you should be their preferred supplier.

Re-Imagine Your Business

Is it possible to do more business online or on the phone?   If your service requires contact how can you reassure customers you haven't got the plague?

Look forward, how do you want to operate in the future?   What will be your business model?   What needs to be done to be more than competitive?

Consider the strategies and actions that will be needed to improve your business, perhaps online training on sales or marketing, or read books on business.   Focus on what would make your business better and bring you customers.   What would you need to do to improve the business value drivers (increase sales, raise prices, increase sales per customer, improve conversion rates, etc.).

Prepare to start again

Business may not be quite the same again and so don't assume it will be.   Will your customers have changed their buying behaviour?   Will there be new opportunities in the market and will your new strategies be effective to target them?

Plan for a relaunch, tell your customers about your new services or processes, how these have improved productivity and will reduce costs and prices (if they will).

Lay out the steps, and consider the resources and the support you will need.   There will never be a better time to prepare, everyone is starting at the beginning again.

Finally –

If you'd like to run through some ideas, give us a call and we'll tell you what we know (might not take long).   We're great fans of 'What-if' planning/scenarios, one page plans, strategy development, operation planning and the three or four action steps needed to achieve required strategies.   Lenders take notice of a well thought-out plan.

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