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Coping with the New Normal - Covid-19 and after

Lessons learned; strengths gained

By Jerzy Dąbrowski, CEO, Bibby Financial Services
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What lessons have been learned by SMEs during the pandemic? It was a difficult experience for everyone and required great wisdom and resourcefulness from businesses. They had to quickly adapt to the new reality and change their plans realistically. Quick response was the key to success. Companies that have survived this stage have definitely emerged stronger for the experience. Now, as everything is returning to normal, we can ask business leaders – what they have learned during a pandemic?

Cashflow is the company's bloodstream

One of the most important elements of running a business is taking care of cashflow. This is the first thing entrepreneurs have learned. Cashflow allows SMEs to pay current liabilities, additional unexpected expenses or expand company. Entrepreneurs who had previously secured their finances felt safer and looked more confidently into the future. They had the funds to maintain the company. They could also implement changes in the company faster and adapt their strategy to the market situation. Any payment delays from a client can be very dangerous for a business owner in such uncertain times. The pandemic showed how easy it is to lose a source of funding.

According to the Bibby MSP Index, at the beginning of April, 38% of the entrepreneurs surveyed  claimed that their clients wanted to pay, but they didn’t have money, because they suddenly lost their cashflow. Thus, the economy is increasing the number of delays and unpaid invoices. 27% entrepreneurs reported the termination of contracts, and 24% complained about a decrease in the profit margin – caused by the need to negotiate prices and commercial conditions with customers. ‘Client insolvency’ was the most common reason for reduced income.

Trade-related insurance – always be prepared for the worst

The entrepreneur must take into account the risk of customer insolvency and be prepared in advance. Transaction insurance is a guarantee of receiving remuneration for your work or product. The pandemic has really highlighted this business truth, especially when any delay in payment can result loss of solvency. Trade-related insurance is security for the company – and for its employees. Thanks to insurance, the entrepreneur has no problems with receiving money and doesn’t have to demand repayment from the client. Especially that for many entrepreneurs asking for repayment is problematic. According to the Bibby MSP Index, 75% of entrepreneurs don’t charge their customers statutory interests for late payment. Entrepreneurs are afraid of deteriorating customer relationships (42% of respondents) or even losing a customer (32%). There is also a large group of entrepreneurs (30%) who state that all their contractors do not pay on time. The transaction risk depends on the client, industry, foreign trade conditions, etc. Before the pandemic, many entrepreneurs decided to pay trade credit insurance only in case of the new contracts. Meanwhile, during the crisis, when the uncertainty is particularly high and the conditions of business may change overnight due to administrative decisions, it is also worth insuring standard transactions with clients who have not caused any problems so far. Now entrepreneurs are beginning to take this into account

Diversification of financing

Diversification is nothing more than the diversity of sources from which the entrepreneur draws financing for the business. It can also relate to an assortment or services.  It consists in reducing the risk of running a business. To secure the cashflow, the entrepreneur should check current receivables and ensure timely repayment, as well as assessing additional financing options. If one source of funding runs out, other options remain. Many entrepreneurs have discovered this out during the pandemic.

Diversification is a strategy that entrepreneurs should use in many areas – not just in difficult times. During the pandemic, when the entrepreneur had only one source of funding, they incurred high risk. In uncertain times, this source of financing could have run out at any time. Many entrepreneurs have only realised this during the pandemic. They will definitely pay attention to this in the future.

Customer verification

Entrepreneurs have learned to reassess their client portfolio. In times of crisis, customers should also be analysed in detail. Especially at a time of crisis, entrepreneurs have had to review their customers in terms of the industries in which they operate and the risks that may occur. Sometimes customer analysis can give the reflection that it is better to sell less but more wisely, which was the key to many a company's survival. Nowadays, entrepreneurs are looking more carefully at future customers. Entrepreneurs have learned how important good contact with customers is and now they will care more about it. During the pandemic, it was very important to speak openly about the difficulties with one’s suppliers. The pandemic has taught businesses to work together. To survive this difficult period, many companies have established unique rules of cooperation with clients, such as delivery dates or staggered payments.

Supplies analysis

Once again, the importance of diversification should be emphasised, also in the sphere of sources of raw materials or components for production. An addiction to only one supplier is a big mistake. Entrepreneurs during the pandemic felt it themselves. In addition, the pandemic has taught entrepreneurs to think locally. When the borders were closed, they had to find suppliers in country. The local supply chain is a great way to help other companies and get the necessary materials for your own business.

Quick reaction

Nearly three-quarters (74 %) of SMEs have taken positive action since the beginning of the pandemic, only one company in five has delayed in taking action. The activities mentioned by entrepreneurs mainly concerned cost cutting: 18% have reduced wages and the amount of work, 16% have applied for help to ZUS and tax offices, 15% have terminated lease agreements and negotiates other fixed costs, 14% fired employees and 13% sent them on unpaid leave. Entrepreneurs now know that in such moments the company must react quickly. After a pandemic, companies will be more prepared for the worst-case scenarios and will be able to make changes to the company faster.

Employee as a brand ambassador

One of the things that the pandemic taught entrepreneurs is the importance of employees for the company. In times of crisis, not only the boss is worried about the future of his company, this concern is shared by employees. Strengthening morale in such crisis situations as a pandemic will quickly give results in the form of increased employee involvement and will strengthen the sense of team unity. The most important thing is to take care of the company's ambassadors – the employees. The owners now know that they must inform employees about the company's situation and be honest with them. This behaviour will bring results in the future.

Business lesson

The Covid-19 pandemic was not something to that anyone could prepare for. The sudden freezing of the economy, remote working, the closure of services points and restaurants. After all, companies that were previously sorted out or who quickly introduced changes will come out stronger and ready for new challenges after this period.

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