Based on the Study regarding the relation between entrepreneurs and the Financial-Accounting Department carried out by our company, it is very clear that entrepreneurs understand the importance of analytical decisions, but, due to lack of business-oriented reports instead of fiscal-accounting-oriented ones, they follow their intuition.
What do we do when a crisis stage materializes? What is the action plan?
Crisis management – Damage plan
I describe how one can do it, from a technical point of view. My firm invitation for SMEs is to determine in a fast and agile manner, if/how they will carry on.
Stage 1: Clarification – We answer the following questions and reach a firm decision in what concerns the next period, in order to get the best out of this context:
- what kind of capital are you deploying for this “breakdown period”
- what is the biggest loss that you can take on?
- what are the B options? C? – partnerships, sales, business remodelling, new opportunities.
Stage 2: Who are your partners during this breakdown period? We refer to the closest partners with whom your business has worked so far and with whom you must identify the best options in order to overcome the breakdown period as well as possible.
- employees – at this stage, it is easier to see who the key employees are, and what back-up schemes need to be implemented. In addition to this, the commitment component is obviously added to the values and objectives of the company, as well, at this moment of crisis that we are all going through.
- clients – an immediate analysis of the continuity portfolio is required: cash flow/inflows and business/volumes for the next period. I recommend transparent discussions and flexibility.
- suppliers – I recommend maximum attention to the impact we generate throughout chain, by means of payment delays. It is an extremely sensitive topic and the maturity based on which we manage this aspect is the foundation of continuation, at individual and global level.
- banks and other creditors – there is a favourable legal framework for payment phasing. I recommend maximum capacity in terms of cash-flow, without any relaxation, because the deferred payment means that you will have to generate cash flows by the end of the crisis period, in order to re-enter the status quo.
- investors – new discussions with investors are complicated at the moment, if we already have a crisis and there are decreases showing. The value of the business is adjusted with a risk coefficient, depending on both the general and the internal context.
Processes within companies need to be re-evaluated and streamlined. I recommend mapping processes and roles and creating a back-up diagram. Also, adjustment on the “crisis pattern” and steps for continuation/resumption.
Stage 3: Risk table: Score = Probability * Impact. During this period, the probability that certain risks will materialize is higher, as such, the impact (the value of the losses) will be greater than in a normal economic context.
– Commercial loan management: discuss with your partners and if you have the opportunity to support a re-phasing, you can do so, with or without interest, but adding additional guarantees and signing the necessary documents.
– The risk of dependency in terms of low number of clients, especially if they are experiencing decreases in activity during this period
– Dependency on certain industries affected during this period
– Risk of foreign exchange losses
– Absenteeism: quarantine leave or possible situations in which employees do not want to expose themselves and work.
Stage 4: The worst case scenario
- Budget & Cash Flow Recalculation: The Business Simulator – the tool for agile budget tracking activities.
What is the available cash flow you have at the moment?
What is the short-term cash flow available from one week to another?
What are the available resources that you can rely on, in order to keep your business going? What time period do these resources cover?
- we assume this plan as long as we do not put at risk the personal/family budget
- the financing capital of the breakdown period – what is the opportunity cost? what alternatives do I have?
- flexibility within contracts, which must be carefully regulated – for example, as a supplier you can support the activity of a client in difficulty, based on guarantees.
ØPoint of interest: the client; after this period of breakdown, it is highly possible that you have to adapt your business model.
ØPositive point: reassessment of salary budgets, opportunity to develop employee loyalty, but also to test employee fidelity and commitment – orientation towards productivity and transparency!
Crisis Management – Business Continuation Plan – insides:
- limited resources => opportunities for streamlining
- NEW BUSINESS MODEL – value proposition + manner of doing things / processes and roles
- pay attention to the dynamic / growth upon resumption of normal activity
- a Trap and Opportunity: attention outside, approach based on figures
- What do I learn? -> to create an emergency fund in the company’s own equity.
Ioana Arsenie – owner Trusted Advisor Strategy & Finance – is an expert in business strategies, with expertise in financial, fiscal and management consulting, who offers, by means of her company, integrated services related to financial strategy and accounting for Romanian entrepreneurs.