The five key risks COVID-19 has brought to your business and what to do about them

Yesterday, it was announced that in the UK all non-essential retail stores in England will be allowed to re-open from 15 June, on the proviso they are ‘COVID secure’. The Prime Minister also confirmed that open air outdoor markets and car showrooms can open from 1 June.

While this easing of lockdown restrictions is undoubtedly good news for retailers and suppliers, most of whose businesses will have been hit hard by being unable to trade as usual for the past two months, reopening under social distancing rules now brings a whole new set of challenges.

The impact lockdown has already had - combined with the impact working under social distancing will continue to have - will not be the same for every business, but according to Mark Neath, director at financial experts Old Mill, the main risks can be broadly grouped under five key headings.

1. Reduced demand
2. Supply chain
3. Cost pressure
4. Efficiency
5. Cash losses

Here, he goes through each, looking at the threats they have brought and continue to bring, and what response businesses can take.

1. Reduced demand

In the short term, demand has probably been impacted by customers not being able to buy your product or service, while in the medium term, you may find that even when we start to return to normal, demand won’t, either because your customers’ buying habits have changed, some customers have gone out of business, there is a general reduction in demand or a combination of all three.

So, what can you do?

’If the main issue is that you cannot access your traditional market, you will need to look at diversifying or finding new ways of distributing your product or service,’ says Mark, ‘and think about if this change would continue alongside your traditional revenue stream, or replace it, post-lockdown, and what the implications of that shift might be.’

If there has been a general drop in the market, you need to gain more market share.

‘If you have the resources to promote your business, now is the time you could get ahead,’ says Mark. ‘In terms of pricing – if your customers are loyal and not too affected by pricing, you could look at a price increase. If the opposite is true, maybe a discount will work to drum up business.’

2. Supply chain disruption

Even if your business is able to continue, it may be that your suppliers are not, which could mean you have nothing to produce and there is nothing to sell once your stock is depleted.

So, what can you do?

‘Talk to your suppliers so you can understand their issues and expectations and work that into your plans. If the lack of supply impacts your workforce, talk to them about reduced working hours.

’You will also need to explain what is going on to your customers and see what you can do to help - are there alternative sources of supply that could meet your needs and timescales? And if there are, but their prices are different, can you pass any increase on to customers? Or is it worth accepting a lower margin in the short term to ensure sales continue and the business stays afloat.’

3. Cost pressures

In the short term, a shortage of certain materials may drive up prices, but there could also be extended price pressure if your suppliers are needing to raise their prices too. There will also be the knock-on effect of governments around the world increasing taxes or accepting higher inflation levels to pay for increased spending during the crisis which could potentially push up prices for your suppliers. Any increase in your cost base will affect both profit and cash.

So, what can you do?

‘Talking to your suppliers and understanding their issues can help you to plan your response,’ says Mark. ‘The other option is to try and source from other suppliers with better prices; the pandemic has impacted countries differently, so it may be that suppliers that were once more expensive are now more competitive, and vice versa.’

4. Efficiency

When cash is strapped, you need to be as efficient as possible, and while you might think you already are, business costs tend to accumulate when you have the luxury of being able to afford them. Lockdown brings more pressures, as there could be additional health and safety measures you need to put in place which will impact efficiency and have cost implications, while workers who have been furloughed may take a while to get back up to speed.

So, what can you do?

‘You need to go through your business’ expenditure line-by-line and cut out everything you don’t need. There will be costs that you can’t cut completely but could make savings, for example, standard class travel rather than first-class; or a video meeting instead of travelling at all.’

5. Cash Loss

Clearly, the availability of cash is critically important at the moment, so anything that causes cash to leak out of your business needs to be prevented; the biggest culprit is customer non-payment (or slow payment), while fraud is also a danger.

So, what can you do?

’Many of your customers will be experiencing their own cash flow challenges. It might be a case of 'whoever shouts loudest gets paid first', so it’s essential to chase as soon as an invoice is due and then to keep chasing.

With those who are struggling, Mark suggests offering different payment options, but for those whose viability is doubtful, he advises insisting on shorter credit terms or up-front payment.  

’While you may be reluctant to take this approach for fear of losing the customer, remember it’s better to lose a sale than make one that doesn’t pay. There will be a rise in business failure and if it happens to some of your customers, you don’t want to be collateral damage.’

Sadly, fraudsters have already started trying to exploit the current circumstances; government support measures have created many new opportunities for fake emails and ‘phishing’ fraud, so Mark advises businesses to be extra vigilant.

’Reinforce the message to all of your people that they should be sceptical of unexpected email, avoid clicking links, and certainly never enter their password into an external site.’

Mark concludes: ’While I have talked through five categories of risk, there are actually a handful of common themes running throughout this approach that will guide you in managing your risks - preserve cash, communicate, understand your position and threats and act on information – and if you keep these in mind, you will have a much better chance of navigating these unprecedented times.

’My article, ‘Managing Risk, Taking Action’ goes into detail about all the potential risks the pandemic has brought - and may continue to bring - to your business, and looks at ways to plan for and manage the risks to create the best outcome in the long term’. Read it in full here https://om.uk/insight/managing-risk-taking-action-22-05-20/”