Consulting Partner, MNP
At the height of the COVID-19 outbreak in Canada, Parliamentary Budget Officer Yves Giroux estimated that the country’s GDP would fall by 12% this year, four times more than the sharpest decline on record. He also predicted that it would take two years for the economy to return to where it was in the first quarter of 2020.
To find out how the pandemic has affected Canadian companies and how they can weather this storm, Mediaplanet spoke to Yohaan Thommy, Consulting Partner with MNP’s Consulting Services team who leads the firm’s performance improvement practice.
What’s the current state of Canada’s business environment?
The pandemic has caused a lot of disruption. In many instances, small- and medium-sized businesses don’t have access to financial relief, either because they don’t meet government requirements or because banks are looking at ways to mitigate their lending risk and will therefore be lending less and asking for stricter adherence to covenants. As a result, many businesses will have to move toward running their operations with less cash and more inventory as supply chains move from “just in time” to “just in case.”
How should businesses react in general?
A lot of owners are worried about being resilient in the short term — they’re focused on gross margins, but they would be better served by focusing on other issues. I advise clients to get scrappy and come up with interesting and creative solutions. This is a great time for them to ask, “How can we do things differently — and better?”
The businesses that will weather this storm are looking at other indicators, such as return on investment in terms of cost and time commitment. I helped one company find ways to make beneficial adjustments such as better managing staff. Together, we figured out how to improve productivity by 30 percent. They said they wished they had taken the step a long time ago.
Overall, this is the time for businesses to take a long hard look at their operations and to find ways to regain lost productivity. They need to move from surviving to thriving.
What are a few of the specific steps a small business should take to adapt?
To start, companies should get employees back to work. In some instances, employees don’t want to return to the workplace because they don’t feel safe or because they’re collecting Canada Emergency Response Benefit (CERB). Human Resources and other departments can collaborate to address that problem.
A majority of companies will experience a significant change, so they should look at ways to adjust their business models. For example, many people will continue to work from home so some companies should look at VPNs. (A VPN is a private network that uses the internet to connect remote users.) Their technological infrastructure might need to be upgraded.
Companies should prepare weekly cash flow forecasts for at least the next three to eight months. As a small business owner, this will help you to understand your cash flow needs and to determine how long your business can continue without burning through your working capital.
Small businesses should also identify all their critical accounts. Reach out to all the customers who represent critical accounts to understand how their needs have shifted and how to best meet those needs.
Considering how you can adjust your sales channels is another important step. Some customers who were historically uncomfortable operating in a digital world may be changing their preferences. This is creating new business dynamics going forward. For example, consider personal trainers: some are still helping their clients get fit but are doing it online rather than in person. You may be able to deliver the same services but in a different way.
Another step is to manage your payables carefully. You can do this by prioritizing important vendors when timing payments strategically. For other vendors, discuss flexible or extended payment options.
Also, building many relationships and partnerships is a key aspect of resilience. If you’re a business owner who’s been relying on one supplier, change that. You can no longer count on that supplier being able to meet your needs in the future. You also want to coordinate with key suppliers to ensure you can meet the needs of your critical accounts. Communication and collaboration are essential, so initiate discussions regarding your supply needs and vendor commitments. Then create specific procedures to engage and retain strategic partners.
Is there an example of a business that has successfully adapted to the disruption?
Yes. Several consumer-packaged goods (CPG) companies are developing sophisticated e-commerce platforms. For example, one of the largest CPG companies has done a fantastic job of going directly to consumers. It launched two direct-to-consumer websites, where consumers can order the company’s products. This allows the CPG to do business without a distributor and to keep their gross margin in their pocket.
What lies ahead?
We have yet to see the full economic impact of the pandemic. It will affect every aspect of industry, including supply chains. Companies will have to invest in risk management planning to identify the challenges and employ solutions to meet them. All this can prove costly, so smaller companies will go out of business unless their value propositions aren’t based on price.
However, this disruption is also creating new opportunities. New niches have emerged and some established niches, like health and wellness, are booming. For the most part, people are consuming the same products but in new ways. Successful companies will adapt to the change.
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You’ll also receive a link to download From Uncertainty to Recovery, MNP’s roadmap of the challenges businesses face due to the COVID-19 pandemic, and a link to MPact, MNP’s quarterly magazine.