The following article has been prepared by Will McShane, currently the Chief Operating Officer for Kriticos Nominees, a locally owned family company which owns a number of uniquely Tasmanian businesses in the Tourism, Hospitality and Financial Services sectors (including Tasmanian Collection Service).
Will spent a decade operating the Treasury of the locally operated MyState Bank (and ASX listed MyState Limited) and experienced one of the most volatile times for the finance sector, the Global Financial Crisis. For many of us, this is the first time we have experienced such a crisis as significant as the COVID-19 pandemic. In the backdrop of pandemic, Will draws on his own experiences and shares some insights on how business should prepare for the crisis both now and to follow.
Most in Australia have been very fortunate to operate in the past 29 years without significant financial disruption as a result of external events. Whilst individual businesses or specific sectors have not been immune to downturns during this period, it has been relatively straight sailing for the Australian business community as a collective for what has been an exceptional length of time.
COVID-19 pandemic seemingly has brought this winning streak to an abrupt halt with many businesses and individuals facing an uncertain future. Many have never experienced the harsh reality of a downturn that only seasoned business veterans faced nearly three decades earlier. The lessons from the last downturn as a collective most likely sit dormant like an old book gathering dust
in a back room – many of the current business community probably are not aware such a book even exists.
There are pockets of the business community however that have recent scars from serious and significant disruption where the lessons have been etched into their collective consciousness.
My tenure in Treasury via MyState Bank/MyState Limited was punctuated by one of the most volatile times for the finance sector, something the world had not seen since early in the prior century. The financial crisis (or GFC as widely known) led to differing levels of disruption in the wider Australian business community. Whilst those were uncertain times, ultimately the nation navigated through this time fairly unscathed due to a mixture of government/central bank policy, a mining boom and a little bit of good fortune. Those in the finance community however rode every bump from the GFC and the aftershocks, many of whom took years to recover.
The current pandemic and associated volatility bring back fairly fresh memories of operating during those volatile times (which I must admit, I was not necessarily ready to welcome back into my own mind).
Given my own proximity to volatile times and needing to navigate unknown waters, reflecting on my own experiences has helped in the current environment and consider it prudent to provide some of the key learnings I have taken away from my experiences per below:
1. Adapt for survival and act quickly
Every business in Australia is facing the same uncertain outcomes right now but is aided by a significant effort by governments at every level, financial institutions, and landlords to support
business through the pandemic. However, there will be limits to how much and how long the support will last, and at some stage every business will need to face the world on their own two
feet. Survival instincts (if they have not already kicked in) will be incredibly important for every business to ensure they remain after the crisis has subsided. In these times, its best to be nimble and agile but importantly, be resolute to make decisions promptly and act upon them to give you the best chance of riding out the crisis.
2. Cash is king
Many businesses are facing the prospect of lower revenue as the economy most likely finds itself in a precarious position which will impact the ability for business to operate. In times like this, the adage of ‘cash is king’ has never been more relevant. Business will need to ensure they manage their cash flows to ensure they can continue, meaning removing wastage from their working capital cycle via ensuring inventory and accounts receivable are managed closely. During good times, its always reasonable to expect accounts receivable to remain a bit more forgiving however during difficult times, collecting money owed to you becomes of critical importance. Notwithstanding management of working capital, it certainly does not hurt to bolster your capacity with your own financial institution to fill in some of the blanks where you need to.
3. Prepare for aftershocks
Reflecting on the GFC, to most it was one event. To those in the financial sector, it was a series of waves that hit our shores at different times over a number years that started with the subprime collapse in the US and ran all the way through to the failure of some European nations. Whilst the pandemic is just the one event, it will more than likely create a series of aftershocks that may impact some sectors at various times (potentially independent of others). Business needs to prepare themselves for these aftershocks as they will invariably occur.
4. The new normal – do not waste a crisis
Whenever this pandemic subsides (vaccine or not), the world will look a different place from when we entered. How your customers or stakeholders conduct themselves will likely be very different. For the immediate future (i.e. post September 2020), there may be a noticeable difference in revenue as we all stand on our own two feet. This will become the new normal and every business will need to face the prospect that numbers may look different to the same time last year (and possibly remain like that for some time). Winston Churchill once said “don’t waste a good crisis” many years ago and its appropriate that this mentality provides all business the opportunity currently to rethink their business in how they operate for the future. The reset button on income has been pushed already, now is the time to consider resetting how you manage your business as well.
Overall, this is a difficult time for all business and provides great uncertainty for all stakeholders in our local economies. Navigating these unchartered waters is never been more crucial than today and considering the sage wisdom from Peter Drucker “the greatest danger in times of turbulence is not turbulence itself, but to act with yesterday’s logic”.