Peter Watson of Lincoln-based advertising firm Distract previously revealed his four-point crisis survival strategy in a video for Be The Business. Now, Peter expands on how exactly he is applying this to his own business through careful cash flow forecasting.
The first thing I suggest businesses do is start cash flow forecasting. We created a spreadsheet based on three possible outlooks – a “business as usual” scenario and two alternatives. One was what we thought was going to happen, where we expected a 15 to 20 per cent drop in revenue, and the other was almost a “disaster recovery” scenario in which business dropped by 50 per cent or more.
We simulated every possible scenario because I didn’t want anything to come as a surprise. I didn’t want us to sit there and go: “Okay, so revenue has gone down by 15 per cent, what on earth do we do now?” I wanted to make sure we had a full battle plan that was ready to go.
Draw up action plans
The second thing I suggest is that your cash flow forecasting leads to action plans. For us, we looked at our necessary costs – things we have to have at all times – and also at our variable costs that we can pull in if we need to. We were brutal, even looking at what the outcome of reducing everyone’s salaries would be, or, if we needed to furlough some staff, then which staff would be furloughed first.
It was a full-on plan from top to bottom, covering best case scenario through to worst case scenario and how we would resolve things. This conversation lasted just under a day, and involved myself, my business partner and our accountant who went through different cost options and said things such as: “If you need to do this at a certain point, you could do it here.” The three of us went through every line on our cost sheet and every revenue line to make sure that we had full plans drawn up. We then reviewed it the next day to make sure that our hearts were still in the same place.
Having a “rule book” like this removes the emotion out of every decision. I am actually less stressed now than I was running the company normally. It’s a matter of fact that everyone is going to have some level of downturn, and if our business now has to cut a certain cost then it will be something we planned for and strategised around.
A marketing opportunity?
The next thing that businesses should look at is marketing. Having done some solid cash flow forecasting, we’re increasing our marketing spend by 90 per cent. Our game plan is that if we attack the marketing sphere right now, we will be in a very good position on the back end of this. Also, the average cost of advertising online is about 20 to 25 per cent cheaper right now.
We’ve launched some new campaigns targeting different sectors, and are offering some free guides. No one is really going to be buying anything for a while, but it’s your opportunity to get things into people’s hands which you can sell to at a later point.
Of course there’s a gamble to all this, but the way I see the world of business is that you live by capitalism and die by capitalism. Business owners can go out there and make some nice money when times are great – but when times are hard you’ve got to roll the sleeves up and try to learn from the experience you’ve had during the good times. You never know if you’re making the right or wrong decision, but what you do know is that if you put in all the preparation required to make those decisions, then you can look back and say: “Well, everything I did was lined up with the right things in mind.” People make bad decisions when they’re emotional.
What happens next?
The final thing businesses should think about is their recovery plan – what happens at the end of all this? I’m actually expecting client spend to go down during this period – so how do we make sure it lifts back up? Our recovery plan is linked in really nicely with our marketing plan – we are filling the pipeline now with the free things we’re doing.
We’re trying to fill our pipeline so that the moment people start spending again – which they will – we’ll be there getting the clients signed up. I think business owners have two options – they can either put their feet up and coast through this period, or they can try things that they never tried before and hope that they bring in dividends later on.
Reports are coming in saying that 20 to 25 per cent of businesses will go bust during this period, which means there’s a 25 per cent market share available for someone to grab. And that’s in every single sector. So the people who are prepared for this will come out better. The people that aren’t panicking will always win.
Peter’s top three coronavirus tips
You make ridiculously rash decisions that you’ll always regret when you’re emotional about decisions. Making sure you’re calm and have plans in place and that the things you’re doing are natural processes rather than on the back of panic is the best way to overcome it.
Know that you will be judged
As an employer, I think the biggest question that will determine whether someone joins your company in the future will be the simple question: “What did you do for your staff during the coronavirus?” Business owners need to understand that yes, you could furlough half your team or make redundancies, but people don’t forget this stuff.
Diversify and innovate
If you’re a restaurant owner and your restaurant is shut, for example, there’s a huge opportunity to try and create a new brand. Let’s say you’ve always sold pies: you can easily go to Deliveroo right now and open a noodle bar to see if your local town has a requirement for noodles. If it does, you then can create a noodle bar when this is all over.