In recent weeks I have spoken to, and become aware of many other businesses that are experiencing some really tough times from the fall-out of Coronavirus. It took them by surprise, and for some, has meant the transition into voluntary liquidation.
So many industries are feeling the impact of the pandemic – some you might expect like tourism, where 1.3 million of our 8.7 million overseas tourists are Chinese. They spent $12.3 billion while in Australia in 2018. With the travel ban in place for Chinese people entering Australia, businesses that rely on the tourist dollar have been at the frontline.
The travel ban has also immediately impacted the education sector, where Chinese students are unable to get here to start the university year.
Beyond that, the ripples (or rather waves) are being felt in the meat, food and livestock industries where they can’t export the products to China. Import and export businesses are suffering from Chinese factory shutdowns. Manufacturing businesses reliant on products or parts from China are unable to produce goods. The pharmaceutical industry, where drugs and other medical supplies are manufactured in China, is experiencing shortages. The retail sector (already suffering) now has supply issues. Online drop shipping businesses are experiencing supply shortages. That list is by no means exhaustive.
Coupled with the impact to companies that rely directly on China, is all the downturn for companies who may not even realise they have a link to China.
For example, local food and produce suppliers, who may only serve their local restaurants are feeling the squeeze, as the customer numbers (from falling tourists) dwindle. Business consultants have also felt the downturn where their clients may be reining in their spending. In short, the Coronavirus affects more people than we think.
It’s worth noting that it’s unlikely business continuity insurance will cover businesses for their financial losses either. COVID (the virus itself) is not “directly” impacting Australian businesses (their people) and is happening in China, not here in Australia.
In my role as a liquidator and restructuring specialist, I deal with companies that have reached the end of the business line. Still, there is scope for many others to chart their survival course much earlier, when it comes to Coronavirus.
While there’s no doubt more companies will suffer severe setbacks as a result of this disease, and we have no real idea how long it may go on for, there are some steps businesses can take to try and mitigate the risks.
One essential point to stress is not to sit back and hope this will all go away soon. We have no idea how long the ramifications will be felt.
7 tips to help you get through the crisis
- Identify your Critical Products and Suppliers – understanding your supply chain can help you identify risks early on. You may not even realise your product or service relies on parts or components from China but check with your suppliers so you can develop a strategy to manage it if it does.
- Diversify your suppliers – If you rely on a single supplier from an affected region in China, it is time to explore whether other suppliers may be able to step in and minimise the impact on your business.
- Have a contingency – How can you affect supply and demand in the short term? Can you scale back your production to protect the availability of scarce parts or stock? Should you rethink your marketing activity and any future promotions or sales and discount activity? What can you do to alter customer behaviour until the crisis passes?
- Diversify your customer base – This is particularly relevant for industries that rely on China for customers or clients, such as tourism or meat and livestock industries. Can you market your product locally? There is an excellent opportunity to do that in the tourism sector, where Australians are wary of visiting affected countries, and where bushfire, drought and flood-affected areas desperately need a boost. There’s a ready-made local marketing opportunity right there. With a bit of out-of-the-box thinking, other industries could also focus their attention locally.
- Be transparent in your communications – Whether that is with customers or with suppliers, be upfront and honest. That may mean renegotiating supply contracts. Your customers need to be aware of the issues if you have obligations to them.
- Financial and Legal considerations – What will the slowdown to your business mean for your cash flow? Will you be able to meet your obligations to repay debt or deliver to customers? It is much better to talk with creditors before you default on payments than get to a point when they are taken by surprise and could trigger an involuntary liquidation. Better everyone works together to avert a more serious issue.
- Reduce Overheads – Look at all of your costs and reduce non-essential expenses. That may mean delaying planned activations, or product extensions, or may mean reducing your headcount.
If all else fails, talk to a qualified professional about restructuring opportunities.
I can’t stress enough how important it is to act early to come up with a contingency. Don’t sit back and wait and hope for the best.
So many businesses are feeling the effects of COVID19, that working together will be a welcome strategy for most. No-one likes to see their customers or suppliers fail in business.