Now, faced with a crisis, our business owners are having to make some extremely tough decisions: Do I have the confidence and the cashflow to keep my staff on? Do I make some people redundant or reduce everyone’s wages? Who will need to go when the wage subsidy runs out?
New Zealand has moved away from manufacturing, a sector which has a level of built-in resilience due to its cashflow demands and long international lead times. We’ve shifted instead towards service industries, which are rarely set up with strong cash reserves and continuity plans. It’s an ‘eat what you kill’ mentality, where the profits made by our SMEs are cleared out by the owners, rather than being retained for investment and strengthening.
Effectively, these small- and medium-sized service businesses have been living pay cheque to pay cheque in a thriving economy which left them floundering during the strictest lockdown levels. The wage subsidies have helped, and provided we don’t go back into lockdown, they will save many jobs. In other industries, even extended wage subsidies are not enough to protect workers. In tourism for example, some businesses were announcing redundancies at the same time that wage subsidy extensions were made available.. Staff thought maybe it would give them a lifeline; it wasn’t even close. Tourism has been decimated and only the most resilient companies in the sector will survive – the ones that were only just getting by last year are unlikely to make it.
Many Kiwi businesses have grown by accident, rather than by design, and they aren’t prepared for a serious shock. Typically, we’d see this exemplified by a small company that began as a mum-and-dad operation before expanding to take on extra people. As the business grew, though, the mum-and-dad mindset never changed. Cashflow and staffing fluctuate from project to project; no serious structural improvements have been implemented; profits are taken out of the business and maybe invested in a beach house. That model leaves our small business owners – and especially their employees – high and dry in a crisis.
A business isn’t a personal ATM. It needs cash reserves, investment in future technology and strategies for surviving in a downturn. If your business scrapes through this crisis thanks to the wage subsidy, you can be grateful. But don’t mistake survival for resilience. Resilient businesses will be the ones that recover quickest, whose owners are under the least stress, who lose the fewest jobs and those who will be able to capitalise on opportunities in the post-COVID-19 environment.
If your business is going to survive, that’s an excellent start. But surviving isn’t enough – you need to build a better, more resilient organisation. Change is always a tough sell for our businesses. As business advisors, we always encourage our clients to build resiliency into their strategies and operating models by investing in better efficiency, slicker online trading or new distribution channels, for example. However, they tend to fret about upfront costs and find it hard to visualise tough-to-quantify future gains. The response is often, “I don’t want to distract the team from their core business.”
Unfortunately, when that core business dies business owners and their remaining staff spend their time frantically attempting to set up new distribution channels, supply chains and market strategies. All of which could have already been in place, at two-thirds the cost and a quarter of the stress, possibly without job losses, if they’d started earlier.
With change forced on us, now is the time when New Zealand can hopefully take a huge leap forward in technology and efficiency. This crisis has been the catalyst for a shock in many traditional industries – when the firefighting phase is over, can our businesses respond with permanent positive changes? Can we have a more productive economy? It’s possible, but not if we merely do the bare minimum to survive and maintain our old ways. This should be the wake-up call for survivors to create more resilient businesses, and to keep trying to maintain a high level of resilience through investment and planning.
Get it right, and when the next crisis hits, your business can be better prepared. After the Christchurch earthquakes, many business couldn’t access their PCs or paper-based files, and or reach all their clients and team members. During that period, our advice to affected clients was to get rid of landlines, switch everyone to laptops, implement direct virtual customer distribution channels and upgrade to secure cloud file storage systems. There was no way we could have predicted the Covid-19 lockdown, yet when it came, businesses that had those systems were in place never needed to stop working even though it might have been at reduced capacity. That’s in stark contrast to companies who had to shut their doors for seven weeks and make people redundant because they still relied heavily on outdated means of business operations and methods of communication.
Right now, your business focus will be cash management. But as the economy sparks back to life, you should be working with your stakeholders, finance advisors, directors and staff to plan for a stronger organisation. We have tools and advice that can provide a good starting point for this process. Look for the weak spots in your business: which areas are most likely to fail? How can we shore up those weak spots? We don’t know when the next crisis will come, or what it will look like, but a more resilient business is a win for its owners, its staff and the New Zealand economy.