Ensuring the safety and well-being of the employees in the workplace is essential. People are looking to their employer, community and government leaders for guidance.
2. Reshape strategy for business continuity
Most businesses are likely to experience significant disruption to their business-as-usual operations and will face business underperformance throughout the duration of the COVID-19 crisis. To help address these challenges, companies will want to:
- Evaluate short-term liquidity
Companies will want to instil short-term cash flow monitoring discipline that allows them to predict cash flow pressures and intervene in a timely manner. They’ll also want to maintain strict discipline on working capital, particularly around collecting receivables and managing inventory build-up. Additionally, it’s important to be creative and proactively intervene to lighten the working capital cycle.
- Assess financial and operational risks and respond quickly
Companies will need to monitor direct cost escalations and their impact on overall product margins, intervening and renegotiating, where necessary. They also will need to monitor the pressures that may be impacting some of their customers, suppliers, contractors or alliance partners. Finally, be aware of covenant breaches with banking facilities and other financial institutions relating to impairment risks in asset values, which may impact the health of the overall balance sheet.
- Consider debt modifications and loan covenants
Companies may experience cash flow challenges because of disruptions in their operations, higher operating costs or lost revenues. They may need to obtain additional financing, amend the terms of existing debt agreements or obtain waivers if they no longer satisfy debt covenants.
- Consider alternative supply chain options
Companies that source parts or materials from suppliers in areas significantly impacted by COVID-19 will want to look for alternatives.
- Determine how the COVID-19 crisis affects budgets and business plans
Companies will want to stress-test financial plans for multiple scenarios and increase the frequency of budget reviews to understand the potential impact on financial performance and assess how long the impact may continue.
3. Communicate with relevant stakeholders
Clear, transparent and timely communications are necessary when creating a platform to reshape the business and to secure ongoing support from customers, employees, suppliers, creditors, investors and regulatory authorities.
- Customers
Companies will want to keep customers updated with any impacts to product or service delivery. If contractual obligations cannot be met as a result of supplier or production disruption, it is important to maintain open lines of communication to revisit timelines or invoke “force majeure” or “act of God” clauses. Such proactive action will help to mitigate punitive damages or liabilities associated with disrupted customer obligations.
- Employees
For employees, communications plans should try to find the balance between caution and maintaining a business-as-usual mindset.
- Suppliers
Companies need to maintain regular contact with suppliers regarding their capability to deliver goods and services during the COVID-19 crisis and their recovery plans, so that the company can consider alternative supply chain options in a timely manner.
- Creditors and investors
Companies will want to review terms and conditions on loan contracts to identify sensitive debts and avoid vital technical debt breaches. These reviews will have the added benefit of giving companies a chance to proactively manage the dialogue and communications with creditors regarding any necessary amendments to existing terms or refinancing arrangements.
- Government and regulators
When communicating with relevant stakeholders, companies will want to consult with their legal teams for advice on potential liabilities and with their business units regarding how to manage communications around ongoing breaches and collection of proof, if any.
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4. Maximize the use of government support for businesses, where available
Administrations around the world are rapidly developing new measures to address the economic challenges faced by industries, companies and employees.
Many countries have already introduced fiscal and/or monetary measures intended to ease the challenges created by COVID-19.
As new measures are developed, companies should work to track regulatory and legislative changes, analyze how the policies apply to their businesses, share economic concerns and policy proposals with your regulators and legislators, and communicate available new benefits to employees.
5. Build resilience in preparation for the new normal
Once companies have solidified strategies and communicated any new directions with relevant stakeholders, they will need to execute based on revised plans while monitoring what continues to be a fluid situation. Senior management should report any material deviation from the plan in a timely manner so that their companies can take additional action to avoid further negative impact.
Once the COVID-19 outbreak is controlled, companies will want to review and renew business continuity plans (BCPs). They’ll want to assess how existing BCPs are working. If there are deficiencies, companies will want to identify root causes, whether they involve timeliness of action, lack of infrastructure, labor shortages, or external environment issues. Companies will then want to consider putting new internal guidelines in place based on lessons learned, as well as solid contingency plans to build resilience and better respond to future crises.
Plan for recovery now, not later
Although there are lessons to learn after the fact, companies should be making decisions during the crisis with recovery in mind.
The COVID-19 crisis is impossible to predict with conventional wisdom and forecasting tools. However, there are many lessons companies can learn and carry forward once the crisis has passed, and they’ve had a chance to analyze their response.
When the crisis is over, it will be clear which companies have the resilience and agility to reshape their business strategy to thrive in the future.
Longer term, companies will need to consider how robust their business, management team and initiatives were in facing the crisis. It will also be important to consider and reset the business assumptions that underpin the supply chain and other concentrations that many businesses have been exposed to over time.
Summary
As private businesses navigate the ongoing COVID-19 crisis, they must consider these five key priorities: prioritize people safety and continuous engagement, reshape strategy for business continuity, communicate with relevant stakeholders, maximize the use of government support for businesses, where available and build resilience in preparation for the new normal.
