By Roma Priya
Hit by the Covid-19 slump followed by social distancing and a nationwide lockdown, businesses are experiencing major impacts no matter how established they are and are having to re-look at how they manage and operate their business including re-visitation of their business plan.
It has become challenging for most businesses to keep their financial wheels turning during the lockdown period due to less revenue churn and the general uncertainty in the global financial environment.
Unfortunately, the impact on startups or small businesses can be way more brutal as they have scarcer cash reserves and a smaller margin for managing sudden slumps. The ripple effect of this shutdown will have a key impact on India’s economy, as all business sectors get affected resulting in low revenue generation due to an eventual halt/slump on the sale of products and/or services. It is expected that India’s growth rate in FY20-21 will be down to 2% from a range of 4.7%-5.2% as was predicted earlier by the rating agency ICRA.
So, during such testing times, startup entrepreneurs will have to adapt to a new set of rules and be mindful of the following aspects to alleviate risks and to survive the slowdown caused by the impact of COVID19.
- Tracking expenses against the revenue status
During this contagion, it is of utmost importance for businesses to conduct a proper assessment of their fixed and variable expenses as well as the actual revenues. This assessment will give a clear picture of where a company stands financially and help the entrepreneurs in planning ahead in the current disconcerted market. This strategy can be implemented even when the pandemic effect settles.
- Checking the feasibility of the business model
Considering the market is changing every week (and for the worse), it is imperative to reconsider the business model and reassess where your business stands as per your assumptions concerning the revenue and cost. This is also a crucial time to track current financial metrics and cash flow. Be mindful of what your runway is. Businesses need to evaluate the impact on new sales, collections, credit cycles and potential bad debts.
- Plan policies for next 3 months/ 9 months/ 18 months
Since, it is difficult to gauge how long this epidemic will last, it is important to be prepared for all scenarios. If we consider it as a 3-month problem, an instant halt on variable expenditures like hiring, marketing, travel, etc. can help. However, if the crisis continues for 9 months to a year, entrepreneurs will have to reconfigure their business strategy to reduce the variable expenses, renegotiate fixed expenses (rent, salaries, equipment lease payments, etc.), and focus only on the crucial essentials for survival. It may be a good idea to revisit sales strategy – selling online versus in-person. Analyze if you need to cut back or scale up on marketing costs. Some serious reconsiderations would be required if the effect of the pandemic continues for 18 months or beyond. Businesses will need to strategize, communicate, and act with compassion. They would require a revision of sales revenue goals and product timelines along with a new operating plan. In that case, entrepreneurs and leaders will have to keep the communication transparent as much as possible with their investors and employees.
- Be patient in securing investments
Every business needs capital to run and the question that crosses the mind of every founder/entrepreneur in these difficult times is from where they will get the capital. There are many funds who have enough capital to deploy for the coming years and they may not shy away from it.
However, we might witness a dip in VC/HNI funding in the short run. Investors will be more vigilant and may take longer than usual to make funding decisions after following stringent diligence procedures. But there is nothing to worry about because if we look at the previous economic downfalls, we can notice the market eventually bounce back after the end of an epidemic crisis. In order to extend the runway, businesses can even approach existing investors for additional funding. Since, they are already invested and have their skin in the game; they are more likely to help out during this time.
This is the time when understanding the gravity of the situation and turning it favorable for the business is all that matters to let it sail smoothly in these difficult times. Here are a few tips to stay connected and afloat during the shutdown:
1. Communicate transparently with your customers
We are all in this together, so the ideal way is to stay transparent with your consumers about what your business is going through. Customers can empathize with companies facing a crisis, as long as the communication is transparent. Communicate with customers to understand their perception of the product/solution offered by you.
2. Maintaining healthy relationship with contracted parties
It is understandable that it might be difficult to pay out vendors/suppliers during the lockdown. However, it would be helpful to give your vendors, suppliers, landlords’ etc. sufficient notice in case there is going to be any delay in payments so that they can also be prepared and there is no bitterness in this already difficult time.
3. Managing employees & related optimization
For large companies considering layoffs, the primary option should be to cut the salaries of the higher paid exec/employees to try to retain the people who can least afford to lose their jobs employed. However, when the time comes to make the tough call, do it with compassion look out for government directives, and offer extra compensation as and when required. Such implementation should be carried out only once and not in stages such that it does not affect employee morale.
4. Keep Your Team Engaged
Your team relies on you so keep them updated about every development. As a promoter, it is your responsibility to keep your team members engaged and stay connected with them through video conferencing tools like Zoom and Google Hangouts. It is very important to maintain high spirits within the team and understand the general mood within your remote workforce.
5. Communication to stakeholders
Consult with your investors or external experts to plan the right form of communication with stakeholders, most importantly customers and employees. Have an honest conversation on the situation and its impact on your business with your entire leadership team. Any negative message should be delivered with utmost empathy along with transparent reasons.
In these difficult times it is important to stand united and help one another in whatever way we can.Stay safe and stay healthy. Please remember that some of the best initiatives are built in trying times. Like all difficult situations, this too shall pass!
(The founder – Burgeon Law, a boutique law firm that provides a one-stop legal shop to emerging companies, incubators, accelerators, angel investors, family offices and venture capital/ private equity funds.)