Episode 7: Business Continuty through Covid-19

13 July 2020

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Business Continuty through Covid-19

Episode 7:

Business Continuity through Covid-19

We thought you'd enjoy this clip from Hamish's recent Building Resilience with Wellington NZ, if you'd like to watch the entire webinar you can view it here

We'll be talking with Wellington experts about how to plan for change and uncertainty, how to track financial and non-financial indicators of your business to better understand your status and make sure you're not caught out when the market shifts.

Episode Transcript

Hamish Mexted: Kia Ora Koutou and welcome to Business Made Easy. My name is Hamish Mexted, and I'm a director at Convex Accounting. In today's episode, I want to share with you a recording of a webinar that we put in conjunction with Wellington NZ during lockdown. Wellington NZ are the Government Economic Development Agency for the greater Wellington region, and throughout lockdown they were putting on a series of these webinars to help businesses to understand the things that were really critical, to ensure their survival both through lockdown, but out the back end as well as we get back to business as usual. 

In the recording of the webinar which we're going to share with you today, I was covering some of the tips that we were looking to, to see with the businesses we were working with, so that they could get through. So, helping businesses to understand scenario planning, cash flow forecasting, budgets and just some of the KPI's that we wanted to see in really strong businesses we were going to be able to get through lockdown as well as the weeks and months ahead. 

So, without further ado I'm going to play you the recording of the webinar. It goes on for about fifteen minutes. So, we hope you stick through to the end and enjoy it. 


Hamish Mexted: Kia Ora Koutou, and thank you James. I guess it's certainly been a crazy period over the last, what's felt like six months, but in reality, it's been a couple of months. So, I think the first thing we will need acknowledge for ourselves as business man, is the period that we've been through, because as a business community I think we've done an exceptional job at leading up people, keeping our people employed. But also dealing with a disproportionate amount of stress and you know, if you're anything like me, it's been a really hard kind of period, and we've got through it. So, I think we need to acknowledge ourselves for that. 

But if we go back to the 24th of March, it sort of felt like musical chairs. Lockdown was announced and all of a sudden, the music stopped playing and we were all rushing to grab a seat. And you know, the wage subsidy helped but at a level it was poison chalice. It meant that we didn't have to think for a little while about what we would do with our business. But now that's running out, we need to think about the coming weeks ahead and know what triggers we need to look for and know where we're heading with our business. 

As James said, my name's Hamish Mexted and I'm a director at Convex Accounting. And I thought today I want to go through a little bit about how we've managed in our business. We're a relatively small team of thirteen and have exactly the same pressures as any other business. You know, cash flow, staffing, getting things done, jobs out the door. So, I want to touch on kind of how we've managed but then also, what our customers have done to get through. 

And fundamentally our customers have got through by taking the decisions really slowly. It's sexy to pivot and to change your business overnight but that's not real for most of us. So, what we've been working with our customers to do is to really slow down, buy time, get the data, and then make those decisions. And even on the face of it, what was really easy decisions, so for example it was an easy decision for some to take the small business loan from Government. You know, it's interest free, so why not? 

But the reality is, is that you're taking on debt. And you've got to be able to pay that debt back and it's got to be sustainable. Or for a retail business, you know, it was an easy decision to start doing click and collect and to move your business online. But if you're selling a product that's got a really low margin on it, at times the cost of the labor, in terms of packing and getting it out the door, can eat away your whole profit margin. So, what feels like really easy decisions, just need to be taken slowly and really methodically based on the data that people have got at hand. 

So, the starting point for us a business, and I'll touch on it more as we go, was to do some scenario planning. So, what happens if lockdown level four was continued? Or what would happen if level one came quicker? We then took the internal data that we had on our business and what was going on, but also compared that to the broader economic indicators that are around. So, there's some really good, real time data out there that we can get access to. Which helps inform that decision making. 

So, you know, now that we're in level one, our thinking hasn't changed at all from level four. It's still buying time and making those informed decisions slowly. So, for us a business, we were really panicked initially about cash flow. You know, what happens if all of our customers stop paying us, how strong and resilient are we to get through that? And we really clearly communicated with our team. So, our team knew that our decision point would be eight weeks after lockdown level four was announced. So, if that continued, we were going to have difficult conversations with them. 

So, we drew the line in the sand up front and we were really clear about when we would be making decisions, what the decisions would be, and how we would communicate it to our team. And frankly, this hasn't changed. So, now if we go back to pre-COVID which feels like an eternity ago, you know, we had a plan to hire staff and to expand what we're doing. And this is exactly the same today, we still plan to hire, we still plan to keep that growth trajectory we've got going. But we've just changed the data points we're looking for. 

So, we know the financial markers we need to hit before we hire a new employee. So, we got to have the shorts and cash flow, we got to have a pipeline of work which keeps everyone busy at 80%. We've got the have the same number of sales leads coming in the door as last year. So, we're really clear about what the metrics are. And we got to have really solid equalization across the team. So, what I mean by that is everyone on the team has to be busy, not just a couple of people running at 100% and everyone else running at 80% for example. 

Now, this is no different for the customers we work with. So, if you're in hospitality for example, we had some opening at level three, because they knew that they could control their wages to still be profitable and they had the data to back that up. Or they were comfortable to lose money during level three because they knew it would create better customer engagement when we got to level two. For retail it might be about drawing a line in the sand. You know, if you don't have the sales coming through, you know the point, you know the decision that you're going to be making if you see a set level of sales.  

So, you can deheat what is a really emotional decision for every business, I know when they start to pull back and walk away from the team, it destroys their livelihood. Because the uncomfortable truth of where we're sitting is that we are going to see more failures. But we can make that decision easier for business owners if we know what our line in the sand is, and if we know what the data points we need to be hitting are. 

So, again, it's about making decisions really slowly based on data. And then you go, well what accounting data is it we need? And look, there's some obvious ones. So, you need a budget, you need a cash flow forecast, and you need to what the KPI's your business is hitting from the budget and from the cash flow forecast. So, we're recommending to our customers that you have four different budgets. You have a business as usual budget, which is what you would have been doing if COVID hadn't happened. And look, that feels a little redundant because COVID has happened and we're here, but what you need to understand is how far down you are. 

Because if you've got real clarity and exactly the percentage you're down, that gives you a bit of a frame of reference for what's going to happen. You then create an expected case budget, alongside a best and worst case. So, then you've got the full range rather than relying on an average or relying on a gut feel, and from there you can plan. So, if the worst-case scenario happens, how do you reshape your expenses, or your staffing structure, or your remuneration as a business owner? If the best case happens, what is your growth and expansion plan look like? And all of sudden, you get a framework with which to make decisions, rather than relying on gut feeling. 

Now, for every business we work with, the owners gut feel is going to be right nine times out of ten. But if we can get it right ten times out of ten, then we're going to be in a much better position. And that's what this data lets us do. So, you got a budget, you got your cash flow scenarios, so you know if you can still make your loan repayments. You can understand the impact if customers pay you quicker or slower, you can pay your tax, pay your GST. But also, take your pay as a business owner, because you know, as I mentioned earlier on, we've dealt with a heck of a lot of stress. So, we need to be remunerated for it. 

And then finally, from the budge and cash flow you come up with a swag of KPI's which are those lines in the sand. So, if you're in hospitality, retail, what is your average customer spend look like? If you're an online store, what does your repeat purchase rates look like? If you're a service business, how busy are your tenders. If you're a manufacturer, what is your equipment utilization? So, with this data you can then start to monitor the success of your business and your sales pipelines, your conversion cycles and you get a really good insight into what's going on. 

And then you use that information to work out how you either mitigate your revenue loss, so like changing the mix of products you sell so you could sell more high margin product, or you could focus on lower margin product but just getting the turn on that really, really high. You could, if you're in hospitality, cut your menu back to a real basic menu. Which means less wastage from your kitchen, which means a higher gross profit margin. You could also then look to manage your staffing hours and you have a swag of options available to you, based on data, rather than gut feel. 

So, you need to take the data for your business and apply the broader economic data that we got available. So, from Infometrics for example, or sorry, from Treasury, they have a weekly economic update which gives us data on card spending, but it also gives data on traffic volumes. So, you're not going to do anything today or tomorrow, you're not going to fundamentally change your business based on this data, but what it does do is highlight what might be two or three months down the road. 

And it's hard to plan beyond two or three months down the road right now, but you can start to think about it. So, with card spending be up and traffic being down, that indicates that people are spending it from home. If this trend continues then you might focus more on your online offering rather than your brick and mortar retail stores. Or you might look at your unemployment statistics, and in that we're seeing that a lot more young people are ending up unemployed. So, if you market directly to young people you might need to change your marketing mix to people who have more disposable income. 

There's some incredible data out of Stats New Zealand and their Data Ventures Unit, and what that does is look at the number of people that are connected to every single cell phone tower. So, you can see where the people are back at work if they're in tourism areas or if they're still working from home. So, you can then use that really high level data to compare what's happening in your location and then see if you're above or below average and start to work out whether the trend you're seeing in your business is across the wider economy or if it's something specific to what you're doing. 

And if it's something specific to what you're doing, you might then use that as a way to tweak your offering or to change what you're doing. One customer we've been working with is in the construction sector and they tend to pick up two or three big jobs a year and they spread the rest of the year through really margin, small jobs. This year based on the number of building consents issue, they'll pull forward all their big projects, they know that they're going to make less money from that because they're missing out on high margin small jobs, but they're really comfortable because it keeps all their team employed and it keeps everyone moving. 

So, you can take this really high level data, which often feels kind of theoretical and irrelevant but apply it to your own business in a really accurate way to overlay that against your data, with your experience, and then make more informed decisions off the back of that. So, this data is important and it's this data which us helps, I guess, make the big decisions in a really slowly and informed way. 

So, I guess to close, ultimately it comes, as I said, down to knowing your data and taking the decisions at the right time. I guess, the hard truth, and this is kind of ugly, is that some businesses are going to fail but that ugly truth in between creates opportunity for some. So, it's about knowing when to jump at that opportunity. That's the key to be able to keep your business humming. And we jump at that opportunity off the back of a really strong budget and cash flow with scenario planning, and understand the KPI's that come out of that planning and that is what gives us confidence as business owners, I guess, to keep moving forward and to keeping leading our businesses over the coming weeks and months ahead. 

James: Yeah, Hamish, that's really good. There's a lot of key areas. One thing, just personally, I'm getting a lot of questions from my clients, and customers, and everything, and especially in the hospitality field. They're coming to me and saying, "James, man. We're at level one, people are starting to come back out, it's looking great." But part of my brain is saying, well we still got wage subsidy, we still might have rent releases on those sites and I don't feel it's as norm as yet. 

Do you think, you know, some people start to think it's great but then once we get out of this, maybe the next three to six months, that might get it to norm, then you actually know what your real market is? 

Hamish Mexted: Yeah, and that's making decisions slowly, right. Because there is a whole group of businesses who are exceptionally, exceptionally well right now. But what we've got to do is see what that normal is. And I guess, the businesses that are doing well, it's quite localized in the hospitality, in the hospitality sector. So, there's some parts of the one entity they're doing okay, where there's other parts that are really struggling. 

So, we just got to wait before we start to hire more people to lay people off. Or to change closing hours. And until we've got that really, really hard and true data to fall back on. 

James: Yeah, correct. Just got a first question here from the hospitality, retail sector. Can you just clarify more on KPI's. 

Hamish Mexted: Yeah. So, the KPI's I'd be expecting people to hit would be really dependent on the particular business. So, the hospitality, often we're looking at head count through the door and then the average spend per customer. You might also then be looking at your wages to sales ratio, make sure you've got your staffing mix right. And then split that wages to sales ratio across your kitchen and your front of house. So, if you've got all of those different areas working together, as well as appropriate pricing on the product you're selling, then it's going to be really accurate for you as gauge where to go. 

But again, it's got to be really specific to your business. So, for anyone on the webinar today, I just recommend talking to your accountant to get a handle on what they think the best metrics are for you and then come up with a really easy way to monitor it on the day to day basis. Because, we can all die in too much data, but if you know what those really critical things are and you've got an easy way to measure it, then business is easy moving forward. 

James: Yeah. So, for instance if you're selling chocolate say, it's quite different from a spend per head, it's more what's going out the door in orders wise to what you had before and after, is that right?

Hamish Mexted: Yeah, or in that case I might be looking at repeat purchase rates. So, if you're selling chocolate to, if you're in wholesale selling chocolate to a retail outlet, you might be looking at how often those retail outlets are coming back to buy from you. If you're selling it online direct to your customers, you'd be looking at how often they are coming back to buy. So, there's a whole range just depending on where you sit on the spectrum. 

James: Another question here, it's quite broad. What's one major indicator I should be looking at, at my business?  

Hamish Mexted: Okay. I guess, the saying that cash is king, is more true today then it's ever been. So, when you're doing forecasting, it's about looking at what your bank balance is going to be at three and six months from now. And it's hard to see past that because things are changing so quickly, but if you know what it's looking like moving forward, and then you plot your actual cash position back against what you projected, you can start to handle on when you're up and down and then if you're up why, if you're down why, if you get close to the wind, you know you're triggers to go to bank. 

So, if you've projected that you're going to be at fifty grand in three months time and you end up being at ten grand, then it becomes a really easy trigger for you to make a call to the bank or to chip something in yourself. Because, I guess, it's ultimately it's cash in the bank as business man that helps me sleep at night, knowing I can pay wages, and pay rent, and pay the lights, and things stay on. 

James: Yeah, truly. There's another question in here from John. Can we all breathe a sigh of relief now that we're at level one, for our business?  

Hamish Mexted: I'd love to say yes to that. I guess the real concern I've got is two or three months now. And look, winter is difficult for any business. You know, everyone kind of goes home and hibernates a little bit. So, when we're in the middle of winter that's when the test will come. Because a lot of businesses have burned their cash reserves that ordinarily have gone into winter. So, if we're going in skinny, it's going to be hard to get through. 

So, the rubber will hit the road I guess in two or three months from now. Is what I'm, kind of I'm looking to for most of the businesses that we're working with. 

James: Right, yeah. One last question, I think we already maybe answered it. Is there a link to useful data to which could be used for forecasting? I think this one might be in that sort of retail/hospitality area, but you think it's maybe just looking at what you did in the past versus now, to making costs and meeting them? 

Hamish Mexted: Yeah. A lot of it comes down to self benchmarking. So, if I know what average spends were before COVID and I know what they are now, I can then compare that to what average card spending is across the economy. And if average card spending is down more than I'm down, then you might feel okay about it. But there's a whole lot of info that comes of Treasury and Stats. Which, again, as I said earlier, kind of feels high level and irrelevant. But if you can start to do your business in light of what’s happening in the wider economy, then it becomes real. 

So, check out how you were going this time last year, check out how you were going the month before COVID hit. So, if you look at February and compare it to that. You then look at the broader economic scenario and then you start to get a picture from that sort of data set. 

End of Webinar

Hamish Mexted: And at that point we wrapped up the webinar recording. So, I hope you've really enjoyed listening to the tips and tricks that we shared there. If there is anything else that you'd like to run through for your particular situation, feel free to reach out to me. You can find my contact details on the show notes for today's episode, or jump onto our website, convexaccounting.co.nz and you can find all of our details there. 

If that's not your thing, feel free to jump on to LinkedIn, add me as a contact and flip me a message, I'm happy to engage with you there. But thanks again for joining us today. We hope you found it useful and we'll be back in the next week or so with the next episode of Business Made Easy. 



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for more help feel free to reach out. Get in touch with Hamish Mexted