Date posted: 2/06/2020 8 min read

Why it’s time to think about your business’s post-COVID-19 recovery

Past economic crises have taught us that those with a plan for business after the pandemic will be better placed for recovery.

In Brief

  • The COVID-19 forced break gives businesses a chance to make changes to be-come stronger.
  • Businesses need to focus on flexibility and having a plan B to get through the cur-rent crisis.
  • Long-term thinking is vital as there’s no guarantee that people will change their habits back.

By Ben Hurley

In 2008, as markets reeled from the onset of the global financial crisis (GFC), entrepreneur Diana Williams made the call to refresh the look and feel of her Australian women’s gym franchise, Fernwood Fitness.

Across the franchises [there are now about 70], Williams changed the upholstery and introduced a new colour scheme of charcoal, grey and bright pink – a move that didn’t cost a lot but gave the brand a shot in the arm that helped it emerge stronger on the other side.

Now, as COVID-19 wreaks what could be the biggest destruction on business for more than a century, Williams again sees opportunity. Fernwood gyms had been working on their virtual offerings before the pandemic, so, with consumer behaviour undergoing profound change, this was as good a time as any to ramp that up.

Fernwood is one of thousands of businesses making the best of a tough situation, doing what they can to get through this crisis and possibly even come out stronger from the experience. Fernwood has substantial cash reserves and a franchise model that means franchisees help share the load, putting it in a better position than many other businesses to get through this crisis.

“When you’re in business for such a long time, and all of a sudden you’ve been given two months off, it gives you a chance to re-evaluate your business and look at ways that you can do things differently and ways that you can improve,” says Williams. Helping her through it is her accountant, Mark Harrison CA of Pitcher Partners in Melbourne.

Kylie Parker CA, director of Sydney-based Lotus Accountants, is another chartered accountant on the front line assisting clients. Parker worked through the difficult introduction of Australia’s goods and services tax in 2000 and then as a partner in a mid-tier firm during the GFC of 2007-08. She says the shock from COVID-19 – the degree of change, the level of uncertainty and fear – tops them both.

But as someone whose role is to advise, support and direct, Parker is finding positives in what have been quite dark times for many of her clients.

“I have had clients launch new business lines; a lot are self-learning about the government stimulus measures and other grants available – and staying positive,” she says. “Even businesses with forced closures, like Pilates and yoga studios, are finding they are increasing income as they are no longer limited to a physical space – they are simply limited to the number on a Zoom meeting.” 

Parker believes businesses that survive – even thrive – during these times are those that embrace the situation, get creative with new ideas, push themselves out of their comfort zones and find support in like-minded communities.

Kylie ParkerPicture: Kylie Parker CA.

What we’ve learned from the past

With COVID-19 delivering a profound demand shock to the economy, sending consumer and business confidence to record lows, the crisis businesses now face could last well into 2021 and beyond.

“Businesses could experience rolling shutdowns until a vaccine is available (which might be next year),” says CommSec senior economist Ryan Felsman.

Of course, many business owners will have been around long enough to remember past economic crises and the measures business owners took then.

“Back during the global financial crisis, many Aussie businesses responded very quickly by slashing production and running down inventories,” Felsman says. “In the December quarter of 2008, businesses ran down their stocks by A$3.4 billion which was the largest fall on record.”

This time around, some businesses hit by falling demand for new purchases have pounced on the rising demand for repairs and maintenance, he says.

Auckland-based economic consultant Donal Curtin says while we can look to past behaviour to some extent, in actual fact this crisis is unlike any other.

“Sure, we can look back at ’87, Japan’s bubble, the tech wreck, the GFC, and we can see that a lot of companies took away the right balance sheet messages about excessive debt and inadequate liquidity and overpaying for assets. That’s all fine,” he says.

“Trouble is, the credit-driven collapses of the past three decades don’t give you a great pointer on how to manage the COVID challenges. They’re different. They’re about flexibility, resilience, plan B.”

Donal CurtinPicture: Donal Curtin.

Not every business will recover

Todd Gammel CA, Insolvency Partner at HLB Mann Judd Sydney, says businesses need to move quickly to understand their options and avoid the excuse that they don’t have enough information to make a decision. He points to Australia’s ‘safe harbour’ laws, passed in 2017, as a powerful tool that will help directors do their utmost to save a distressed company without fearing personal liability from trading insolvent, so long as they are transparent about the challenges they are facing.

Armed with this information, business owners and directors need to decide on a plan, even if this is a difficult decision to make. Sales, acquisitions or mergers shouldn’t be off the table, he says.

“Value has changed for a lot of businesses and will change for a while until it restabilises,” Gammel says. “If you work your way through that, there is always opportunity in this sort of market.

“There will be some people who, by plan or by luck, will create a competitive ad-vantage for some period by being able to adapt quickly and create something people really want. The big thing is – and I say this to my clients – how are you adapting your offering for social distancing which could be here for the next year or two?”

Smaller firms using overseas outsourcing need to think particularly hard about this question, Gammel says. “How is that going to work when some of those countries are in lockdown – such as the Philippines, India and throughout Asia. If those countries go into lockdown and there are data issues, it can change your business structure very quickly.”

Businesses having trouble with loans also need to treat their bankers in the same way they would treat significant equity investors and avoid anything that will erode trust, Gammel says.

“Don’t give them surprises. And if there is a surprise, try to have a solution ready at the same time so it’s not all bad news,” he says.

Rebuilding is emotionally gruelling, Gammel adds, drawing a parallel with restructure processes that involve a commitment to “stick to the plan” for a year or two, despite having good days and bad days. And accountants need to be proactive in showing what value they can offer in helping clients navigate
this difficult time.

“Don’t be afraid to talk to people,” Gammel says. “A lot of accountants are now talking to each other around the real issues, asking, ‘What are you doing with this?’ or ‘How do you think this will work?’”

Of course, not all businesses will survive and what major crises often do is weed out those organisations that maybe weren’t in such a good position before the crisis anyway, says Curtin.

“Ross McEwan, the CEO at NAB, was going on the other day about empowerment and enablement, and that’s where CEOs should be looking. The old-style corporate structure was supposed to be a more efficient way to do things. How many companies are going to discover they worked better over Zoom without the head office apparatchiks? And that they need to go on being faster and nimbler?”

“How many companies are going to discover they worked better over Zoom without the head office apparatchiks? And that they need to go on being faster and nimbler?”
Donal Curtin

Break on through to the other side

Certainly rather than shut up shop during lockdown, many businesses have found new ways to operate under the new normal.

Consumer-facing businesses of all types have found ways to continue operating by delivering goods and services to peoples’ homes. A survey from the Australian Bureau of Statistics released on 7 April showed 38% of businesses had changed how they delivered goods and services during the pandemic, such as shifting to online sales.

Dr Jason Talbot CA, managing director of business management consultancy Graphite i2i, says the crisis phase businesses are facing will be followed by a trans-formation phase in which they re-imagine their offering and adapt to a new environment. Once people change their habits, there is no guarantee they will change back, and businesses need to be thinking ahead for a range of scenarios.

“The longer this goes on, the more likely it will fundamentally change the way we live our lives and the way businesses work,” Talbot says. “Being prepared for that is going to be a real challenge. “For example, we will travel differently and holiday differently, but maybe local tourism will become a bigger focus.”

Crises tend to force businesses to make decisions they might otherwise put off or shy away from. “I was on a call with people from a large ASX-listed company and they said it was amazing they had been talking for two years about increasing re-mote working but had been unable to get it happening. Then in the space of a week, they got it happening,” Talbot says.

He believes new products and services will emerge and fundamentally change how people live their lives – the challenge will be in staying ahead of the curve.

Talbot also believes a stronger community focus that has developed under movement restrictions may spawn hyper-local business models and benefit businesses focused on their immediate area – or Australian-made goods. “Those who won’t survive are the ones currently sitting back, hoping the world will just return to normal. It won’t and they will be left behind,” he says.

“Those who won’t survive are the ones currently sitting back, hoping the world will just return to normal. It won’t and they will be left behind.”
Dr Jason Talbot CA Graphite i2i

Looking long term

As well as looking back, it’s equally important to look forward and think long term, says Australian Institute of Company Directors chief economist Mark Thirlwell.

“We’re spending a lot of time thinking, how do you manage the next week, the next month? And that’s inevitable and important,” he says. “But we are currently living through a coronavirus crisis, or CVC, that looks like it will be at least as big a shock to the global economy as the GFC, and – depending on how successful our management of it is from here – risks being a lot bigger.

“The GFC changed the way businesses thought about risk profiles and potential scenarios. It changed investment returns. It changed the nexus, if you like, of global asset prices and interest rates. It was a trigger for some big adjustments,” he says. “We shouldn’t expect the aftermath of the CVC to be any different.”

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