Wednesday, 8 April 2020

9 steps to build your own bailout package to see your business through covid-19

Happy Sunday, everyone,

Businesses and workers from the US, UK and Canada to Saudi Arabia are being given a helping hand by their governments: The UK will pay 80% of the salaries for employees kept on by their employers for up to GBP 2,500 a month. Saudi is paying 60% of the wages of (Saudi) employees for the next three months if businesses agree not to let staff go. A similar measure is rolling out in the US (that “PPP” you’re seeing on Twitter — a paycheck protection program). Governments everywhere are kicking back tax filing and payment dates.

Here in Egypt the Madbouly government is keeping its powder dry: It’s announced an EGP 100 bn bailout package and cut energy prices, among other moves. Consumers, too, are getting relief in the form of delayed loan payments. And the central bank’s surprise interest rate cut a few weeks back has given it new room to maneuver without running up the deficit.

That’s good news if you’re in manufacturing, but there’s not much on offer (yet) if you’re an SME or if you’re in a knowledge-based industry, finance or retail.

This is not a bad thing: The disease has so far spread slowly in Egypt, and the policy response has been moderate, leaving the state levers to pull (a) in the event business conditions here deteriorate further (like in a lockdown or with an extended curfew) and (b) when it becomes clear how badly the global slowdown will hit Egyptian businesses.

But it means you need to craft your own bailout package. Now. Here’s a quick outline of how, based on weeks we’ve spent talking with CEOs and CFOs, including clients of Inktank and long-term readers of Enterprise and what we’re doing in our own businesses.

1. Take stock. What have you already done?

What scenarios have you planned for? What measures have you already taken? How do you feel about them? Make a bulleted list by department or theme, then put it out in front of you (with room to add more stuff) as you walk through the next eight steps.

As you do, remember: We’re at an inflection point right now. Egypt and MENA have (so far) largely been spared the ravages that Italy, Spain and New York are going through, but the case load is ticking up. It could go either way. Same with the wider economic damage: Conditions could go south at a moment’s notice — or we could continue to motor along (relatively) unscathed for a while yet. Keep both upside and downside in mind.

2. What’s going to break — people.

If you’re like us, people aren’t just your “#1 asset”, they’re all you’ve got — and they’re at least as stressed out as you are. They’re balancing work with home schooling with housework and cooking. They’re having the same weirdass dreams / nightmares that you are. And because they’re not the boss, they feel even less agency than you do. How will you keep their heads in the game over the long term if this “WFH” thing becomes a multi-month reality?

  • Take an inventory of common problems. Do you have people who can’t renew their visas right now? Staff still heading into the office who have health and safety concerns? Folks who need to duck out for a few hours Thursday to do things before the stores close for the weekend? Come up with solutions — and communicate them across the company.
  • What are you doing to keep morale up? The tools are limited (starting off by making sure your people are paid in full and on time; calling folks further down the chain of command; all-staff video calls; personal notes; having your People people running call lists all day long to check in on people), but they’re what you’ve got right now. Show empathy, show that you’re aware they can’t be 100% productive right now. Lead from the front.
  • How can you communicate better about the big stuff and the small?
  • Do you really need all those meetings?

3. What’s going to break — operations. 

Every department, from HR to factory ops, from legal to marketing, needs to look at where their points of failure are. Some conversation starters:

  • What if your ad agency goes out of business?
  • What if the supplier of a key ingredient for your top-selling product shuts down (permanently or temporarily)?
  • How will you handle clients threatening legal action because you were unable to deliver on a contract?

 4. What’s going to break — the external environment.

What would a wider lockdown mean for your business? And extension of the curfew? Are you ready to pay taxes here in Egypt later this month if there’s no extension of the filing deadline?

(Tip: You may be able to get away with not filing your financials with the Tax Authority until June if you pay all the taxes you think you owe by the deadline and file for an extension. Check with your auditor.)

Remember, the risks are not just in Egypt: We had a long debate on Thursday about where (not whether) to add another redundant instance of InktankIR, the platform that hosts two dozen investor relations microsites for companies all over MENA. It’s hosted on AWS in the US — would it be safer to add a backup instance in the UK? South Korea? Canada? Argentina?

5. What’s your single most devastating point of failure?

Address that before you get to the scenario planning below. For us: Everything we do on the Inktank side of the business is on a massive file server in our office. It’s backed up to the cloud now, but if the microwave tower on our roof goes down, we’re cooked. By tomorrow, we’ll have a backup to the backup to the backup in place to make sure we can work no matter what (touch wood).

6. Now, revisit your scenario planning.

What does your income statement look like if:

  • Your growth rate is 50-70% below your original 2020 budget? That’s probably a good scenario right now;
  • You miss your 2020 revenue forecast by 50%. That’s probably a reasonable “bad” scenario at the moment.

What you should be doing:

  • Challenge your expenses;
  • Look at your cash and liquidity position and do everything you can to shore it up. As I suggested before, Cash is King in a crisis;
  • Freeze new hiring — and replacement hiring. Until you have more clarity on how the situation is hitting your business, even replacement hiring should need senior-level approval;
  • Protect your budget for R&D — things are going to change, and you need to be on top of it.

Revisit your budget in two weeks’ time and then monthly thereafter.

7. Your most important customers right now are the biggest ones you think will survive.

This is, plainly put, going to suck. Do it anyway:

  • Who are your highest-risk clients — based on their financial positions and what’s likely to happen to their industry? They go on your watch list. Be prepared for them to dump you. And be prepared to be the one who walks away.
  • Net 30 is the new net 90. Receivables don’t pay salaries until they convert into cash.
  • What can you do to better help those in solid positions? Talk to them to understand their new challenges and what you can do to help.
  • Customers you love are going to back out of commitments. Try to find a way to let them off the hook gently and preserve that relationship for a better day. 

8. Keep open lines of communication with your investors and your board.  

Our note of last week covered your board pack. We’ll be back at week’s end with part II, covering your earnings release, guidance and your investor call. Not publicly traded? A lot of the same principles apply at businesses that have taken private equity and venture capital.

9. Remember: You’re going to come out the other side. 

  • What do you want your business to look like when this is over? What will have changed internally and externally (your environment and your client base)? How can you build a more resilient, more interesting business that thrives in better times? What business do you want to lead when this is all over?
  • What do you want your culture to feel like when this is over? How you lead your team through covid and its fallout will solidify (or reset) your culture for years to come?

Okay, folks, that’s it for today. We’ll be back at the end of the week with a note that’s geared more for CEOs and investor relations professionals. 

Until then, we have one commandment: You’re looking after your people and your family. But are you looking after yourself, too?

Best,

Patrick

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2018 Enterprise Ventures LLC.