Food & Beverage businesses must prepare for the financial tsunami caused by the coronavirus outbreak.
While governments across the world have guaranteed billions in financial support, experts across the globe are painting a bleak picture of the world’s financial health.
Kristalina Georgieva, managing director of the International Monetary Fund, has recently spelled out the devastation the outbreak has had on the global economy, which was predicting an upturn.
“It is already clear that global growth will turn sharply negative in 2020. In fact, we anticipate the worst economic fallout since the Great Depression,” said Georgieva.
“Just three months ago, we expected positive per capita income growth in over 160 of our member countries in 2020. Today, that number has been turned on its head: we now project that over 170 countries will experience negative per capita income growth this year.
“The bleak outlook applies to advanced and developing economies alike. This crisis knows no boundaries.”
Certain sectors of Food & Beverage, such as those supplying the frontline, can potentially see this through with few scars. However, many businesses whose doors have been shut for weeks are using up cash reserves, seeking loans, government finances and awaiting the day they can reopen for business – if they can survive that far.
Given this scenario, executives at businesses currently on shut down should be spending the time preparing their organisation to combat the impending recession. Based on a range of expertise, including that of PwC, here are 10 key insights and actions.
Understand the impact: It won’t just be you that will be hit by the downturn. It is important to be aware of how your customers react and how your competitors react. How you work with customers is detailed below – but focus on strong customers and strong products. As for the competition, assess how they will be affected or whether they see it as an opportunity.
Establish a cash reserve: The rule in a downturn – cash is king. The first objective is to build a reserve, or chances are you won’t survive, according to some. Ideally have at least enough for three months but ideally double that. It does mean the cash isn’t working for you, but that is the trade-off. The second objective is to work in cash to provide working capital. Where feasible, collect payments in cash. It may take incentives to customers like early payment, incentivise staff to secure cash payments, while on the flip side, pay creditors on the due date and not before – unless there is something in it for you.
Ditch unprofitable customers and products: Identify your most profitable customers and products and invest your time and resources into these. Poor selling products must take a back seat. As for less profitable customers, you have to assess who, if any, will be worth persevering with. Solid analytics will assist and once you have the information, you can assess price points for products and also liaise closely you’re your chosen customers explaining how you can be of benefit to them.
Diversify client base: Having worked out who your best customers are, the next step is to find more. It is huge risk to rely on just a few select clients – even carefully chosen ones. Continue to look for ways to expand your client base and consider searching for local and national government contracts.
Manage and hire key talent: In the last recession (2008), global CEOs feared more about their staff and the loss of talent than the actual recession according to a PwC survey. It is important to communicate, engage and motivate staff and develop high performers to secure your most talented staff. Additionally, key talent in the industry maybe come available. Be aware of the opportunity if they can deliver for your business during the downturn. Working with a recruiter may assist you to bring exceptional talent that wouldn’t normally be available.
Stakeholder communication: In times of crises, clear communication with all stakeholders – staff, customers, suppliers, shareholders, etc – is essential to effective management. The two key elements to your communication – be honest and timely. Strong communication provides confidence in your ability to manage the business. Keeping everyone informed of the situation as it evolves is vitally important and should not be overlooked.
Payments and invoices: Don’t take your eye off the ball with these. Have an effective system for collecting payments. Be cautious of offering extended payment terms to clients – at least until you have checked out their financial status. Track overdue invoices and have a plan in place to get these payments. Finally, keep an eye on all of your statements – profit & loss, balance sheet, cash flow etc – it ensures you have a clear picture at all times of the business’s finances.
Increased cost control: Cost control and cost reduction must be a prime focus. Take a blank sheet and appraise every aspect of your business looking at where costs can be reduced but enabling the business to function effectively. A short-term solution is scrapping desirable discretionary expenditure. Medium-term, assess the present cost base and identify savings from the likes of procurement, poor work practices, waste etc. Finally, ensure everyone is aware that costs need to be cut and get them involved in looking for savings. Seek variable rather than fixed costs and potentially look at outsourcing or sub-contracting as these are easier to trim.
Have an experienced finance team: Given the financial challenges facing the business, the financial team is going to come under pressure. Resources for experienced people plus necessary IT should be a priority. Consider outsourcing for short term tasks.
Strategic mergers and acquisitions: Finally, this may seem at odds with managing the finances carefully, but opportunities do arise during downturns. They tend to be more favourably priced during recessions but only if your business has the right financial muscle and speed to act. It is not straightforward but acquiring a ‘distressed’ business during a downturn has the potential to generate greater returns as business returns to normal.
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