Short- and long-term steps to SME recovery

May 21, 2020

How can SMEs prepare for the severe economic shock that is going to hit? Ger Foley outlines how businesses can adapt and continue in a different way.

I will not pretend to be an advisor who has all the answers for business owners on this. I absolutely don't. However, as a business owner myself, I can relate to all the uncertainty that business owners are facing.

Short-term actions

Things are clearer when viewed in front of you – on a spreadsheet or even just on paper – it doesn't matter what you use, but it is essential for business owners to make the financial state of their business visible. This will help with the decision-making process and will continue to be critical in the future. You should approach this by:

  1. Determining the cash reserves of the business.
  2. Finding out how much is owed to you from customers, and what exposure you have to debtors that are unable to pay in the short-term.
  3. Finding out the sales pipeline or order book for the short-term (three to six months). Risk profile this pipeline based on the customer, their industry and how their business might be impacted.
  4. Determining what the profit margin will be on certain sales.
  5. Finding out the current fixed weekly/monthly costs of the business – rent, lighting and heating, insurance, etc. Ignore wages/loan repayments for now.
  6. Establishing your payroll cost on a weekly/monthly basis.
  7. Determining business loan repayments on a weekly/monthly basis.

You are now armed with data to allow you to make decisions.

  • It may be possible to defer or get some extension from suppliers concerning the fixed costs mentioned.
  • The banks will help, although this situation is evolving clarity is needed on exactly what this help will look like. Contact your bank and tell them you are trying to understand your position and will need support. Request a holiday or some other short-term reprieve from your loan repayments.
  • Have a very transparent and open conversation with your team regarding payroll. Allow them to look at the numbers and ask for suggestions or input to the discussion.

Longer-term actions

We are in for a severe economic shock in the short-term. We are all in the same boat. All we can do in the immediate term is to survive but, more importantly, help each other and our communities.

Business owners need to have practical positivity and approach the next chapter with the same level of enthusiasm they had when they started their business. Businesses have been built to where they were pre-COVID-19 so they can be built again. Will they look the same? Possibly not, but the SME sector is excellent at being agile.

There are certain approaches that can be followed by the business community:

  • Show leadership as business owners in following HSE advice and return to work protocols.
  • Support their local economy where possible by using local products and services.
  • Local businesses able to operate also need to support the community, e.g. ease of access, quality of service, coming up with innovative ways of ensuring the community has access to the products and services they want. How do you make your product or service relevant in these new circumstances?
  • Businesses that remain strong have a responsibility not to take advantage at this time. They need to pay suppliers quicker than they have previously.
  • Local and national government need to continue to help business owners with whatever supports are needed. We need a period where SME owners can focus on reinventing and adapting their business without the immediate pressure of cash flow and liquidity concerns.

Over the coming weeks, as we understand more about what the medium-term future environment will look like, all business owners are going to have to consider their business models and how they can adapt to a new environment.

Ger Foley is a Partner at Comerford Foley.