As 2020 proceeds, the Covid-19 Pandemic has created totally new climates in which businesses must operate. In order to trade successfully and make a strong recovery, these need to be clearly understood by business owners if they are going to lead their businesses into better times.
Our observations so far
Within this blog, we take a closer look at these changes and their impact on SMEs – based on observations with CMC clients across various sectors. It provides an overview of activity across the 4 quarters of 2020, as outlined below, identifying key changes in the new trading environment and how plans have been adapted to fit.
- Quarter 1 (Jan – March) >>> Pre COVID-19 >>> Business as usual
- Quarter 2 (April – June) >>> Lockdown >>> Survival
- Quarter 3 (July – Sept) >>> Post Lockdown >>> Recovery
- Quarter 4 (Oct – Dec) >>> Post Lockdown >>> Possible Growth
Quarter 1 – Pre Covid-19
Business as usual. Slight rumblings about the disease as it hit China, but it seemed to be ‘someone else’s problem’ and wouldn’t affect the UK.
Quarter 2 – Covid-19 Lockdown – Survival
Almost overnight, Covid-19 was a problem in the UK and lockdown was imposed in Mid-March. Rapidly businesses had to plan for survival.
During the survival stage, businesses had to implement emergency measures to tightly control costs and to preserve cash. Many businesses were complacent, thinking it would be over ‘by the summer’. However, as the science came to light it was clear that Covid-19 would have an impact throughout 2020 and into 2021.
Simplistically, there were three categories of client as they went into lockdown.
1. Companies trading as normal
Clients in software development, IT support, food production, branding/web design etc. worked as normal throughout April, May and June. Indeed, some experienced record trading months! In this stage it was clear that their client base would continue to place orders.
They did not need to furlough staff and they all learnt to work successfully from home and trade with their clients’ remotely. This included winning new business and sometimes with new clients.
2. Companies trading in much tougher markets
Clients in construction or manufacturing or service businesses exposed to catering, events, sports, hospitality and travel had to act rapidly. These clients used the furlough scheme selectively and traded on revenues up to 50% below normal. Survival meant trying to reduce overhead to match the loss of revenue. Many took advantage of government loans to bolster their balance sheets.
Many clients in this group, repositioned the business into new sectors or servicing new types of clients. This happened with remarkable speed. For example, a client designed a range of face shields, got them approved and out to market within this three-month period. Another client in consumer testing perfected home testing with deliveries by courier. Many took advantage of competitors who had removed themselves from the market by shutting down completely.
3. Companies zero trading
Clients in sectors completely exposed to air travel, holidays, food service or hospitality had to lockdown their businesses. These clients furloughed all their staff and as much as possible ‘mothballed’ their companies. For these companies the owners and directors were left to keep a presence in their marketplace ready for any upturn at some unknown point in the future.
Quarter 3 – Post Covid-19 Lockdown – Recovery
Moving from June to July, elements of the lockdown were being relaxed. Survival was still a major issue, but equally there were green shoots emerging in the economy.
Looking forward the balancing act is to start trading again in existing and new markets and to balance the resources needed to service these markets. Cash flow will be tight as companies come out of lockdown with reserves depleted, so good data management is essential to identify the peaks and troughs of activity.
As people come off furlough there are some very difficult decisions about redundancies. Many clients have taken the opportunity to restructure their businesses and take out layers of management. People working from home have shown a remarkable capacity for self-management.
Many companies have decided to stay working from home for the foreseeable future, potentially getting rid of their office space or reducing it dramatically.
All this has placed pressure on the IT systems of companies. Many clients are looking at the recovery stage as an opportunity to start upgrading their IT capability, cutting out clerical jobs which can be automated. Electronic Data Interchange between company and client, ordering items and paying invoices, will be the new norm for doing business.
The sales cycle in many clients is also challenged. Instead of sales people being on the road in their cars meeting clients face–to–face, clients have found that they can successfully deal with customers through a centrally based, graduate level sales person. They sell by researching the requirement, making contact through social media and using video conferencing to get to the decision makers. Often more can be achieved in a half hour VC call than an extended face–to–face sales call.
Marketing has been the common point of success across all companies and particularly digital marketing. Many of those sceptical of how the web can be used alongside social media have been convinced. Digital marketing has provided a very effective way to keep up ‘appropriate’ messaging during lockdown and will be used by many clients to further communicate with the client base as they start the recovery stage.
Quarter 4 – Post Covid-19 Lockdown – Growth
We have hypothesised that for many sectors still struggling, September/October will mark the transition from the recovery stage to the growth stage. Many companies will not have made it to that time. Often, they will be good, sound companies, blown to the edge by the circumstances of Covid–19 and therefore there will be opportunities for acquisition or for strategic alliances to be formed.
There may yet be another general lockdown. So, companies will have to maintain their resilience, preserve their finances and continue to develop their ability to rapidly evolve and adapt to new markets and opportunities.
Our recommendation: Plan for the worst, hope for the best!