"We are living this like a movie, a scary movie". So began one of the many communiqués that have flooded the web these days and which so well reflects the uncertainty that many entrepreneurs are experiencing. And perhaps it is for this very reason, because of the fear generated by the current situation and the question of how we will get out of it and in what way, that I have dared to write my own.
How much longer is this crisis going to last? How am I going to face the coming months? And now, am I doing well... If I lose customers, will I have the cash flow to meet payments? But if I can't finish the current production, will I be able to serve my customers? And my employees, how are they managing? Is my commercial pipeline for the coming months going to be met? And if I have to lay off someone in my team, do I apply for an ERTE or an ERE?
All these questions, and many more, are the ones that are keeping our business fabric awake at night. The fear of making mistakes, the fear of not assessing all the possible options or, simply, the lack of tools that provide a complete picture of the company's situation are the main impediments to the unavoidable decision making process at this time.
Companies must be prepared to face any risk situation. Reacting in a timely manner will be the key to their survival. But how to do it the right way? Through a contingency plan
This business tool establishes a set of organisational, technical and human measures whose main objective is to ensure business continuity, as well as to define an action plan based on prior knowledge of all the company's assets, in order to address any type of risk.
To guarantee the reliability of the contingency plan, it must consider both material and human resources, assigning responsibilities, roles, implications and action protocols for each of them. It is therefore essential to carry out a prior risk analysis.
What questions I should be asking myself
As we have been finding more questions than answers for a few days now, it would be best to ask ourselves the right questions in order to establish that starting point and thus the roadmap. To wit:
- What objectives do we need to achieve?
- How does this crisis affect our business?
- What will be the specific impact on each line of business or area of activity?
- What has been the line of communication with customers and suppliers?
- How does this situation affect suppliers and what impact does it have on the company?
- What is the turnover forecast for the months of April, May and June, and how is turnover performing so far?
- Are there or may there be limitations in the performance of the work in progress?
- What targets have been set per client?
- What are the objectives of each employee during the crisis? Are they clear about their tasks and what the company expects of them?
What can help me cushion the effects of this crisis?
Crises do not come on their own, they do not warn us before they arrive, nor do they anticipate what will happen tomorrow, which is why, in such a changing environment as a crisis, everything happens very quickly, including decision-making.
With all this, we see the need to be prepared based on four premises: to have a clear initial picture of the business, operational and financial information; to know how to interpret the information correctly and accurately; to make decisions based on a defined action plan; and to follow up weekly on actions and monthly on the action plan in the face of changes or deviations.
What I need to be clear about
It is therefore necessary to develop a contingency plan that addresses the following issues:
- Definition of the lines of business or clients that provide the greatest profitability.
- Cash flow forecasting based on three different scenarios: pessimistic, realistic and optimistic.
- Projection of the year-end financial forecast based on the above scenarios.
- Follow-up of the client portfolio
- Analysis of the client portfolio and establishment of an action plan for each of them during the crisis and post-crisis.
- Assignment of objectives and tasks for each employee, as well as individualised weekly follow-ups
- Analysis of value per employee and its impact on the company's profit and loss account.
- Market research and identification of sectors and companies that are benefiting from the crisis in order to reorient commercial strategy.
In short:
By drawing up a contingency plan, what we achieve is to compensate for the lack of control of such a situation. In other words, we manage to mitigate the negative aspects of any crisis as much as possible and minimise its impact on the company's profit and loss account in the medium to long term.
The key to good business management of a crisis, without fear and with uncertainty and emotions at bay, is to bring decision-making into planned, controlled and timely scenarios.
Because there is no point in having all the possible information gathered without an interpretation of it. That is why it is necessary to know how to transform data into information so that the entrepreneur can make decisions with confidence, so that he knows that, within the scenario in which he finds himself, the decision he is about to take is the right one.
The development of a contingency plan makes it possible to see what the company's deviations are going to be and to act on them in time. Because who says you can't come out of a crisis stronger?
Therefore, now more than ever, SMEs need a contingency plan.
Pedro Vidal-Aragón de Olives
Founding Partner of Quercus Ventures