Non-essential B2B businesses need concrete scenario planning
This article, prepared by Adina and Margaret from Profitable Insights, proposes three concrete scenarios to help you start planning for the medium and long- term future and move out of the lockdown psychologically. And it may help you prepare for the recovery in whatever form it takes.
We are aiming at non-essential B2B product and services businesses that are right now struggling for their very existence. They range from media, HR services, consulting, marketing, interior design to non-food retailers, including online retailers. The money is not moving any more through the usual channels or not at the same speed, and most plans are put on hold.
There is a big talk about ‘pent up need’ in the market, but we are not really sure that is quite so for small B2B businesses. Maybe for B2C businesses providing personal services – think dentists or barbers – but even for them, it may not be quite so. Once we get used to not getting our regular service and find alternative ways of solving our everyday needs, we can do without for longer.
Cash is Queen, but Planning is King
Granted, ‘cash is queen’ is a bit of a gimmick, but we needed it to draw attention to a current emphasis on having cash and getting cash. Cash is secondary to the ability to plan longer-term where revenue could come from, in what volume, and how quickly. As we all know, cash follows revenue. Borrowing can bridge a gap, but if we try to build one before we can see the other side, the landing point, then it starts to look less like a bridge and more like a diving board.
While I agree that we should all take care of our cashflow right now, I also think that we need to expand our thinking to longer-term scenarios to help us move on towards recovery at some point. And I have some good reasons why:
- Those who fixate on immediate cash needs are often tempted to borrow more money than they need to. Living on borrowed cash without longer-term planning may be shortening the life of your business.
- The longer-term difference between survivors or non-survivors may be which ones came out of this period with less debt. If you borrow money, you may be losing the opportunity to bootstrap* and come out of the pandemic in a healthier position.
*BOOTSTRAPPING = term borrowed from start-ups and assumes planning every penny, making the most of free help available, and get to the other side with minimum debt and no loss of equity.
It’s helpful to start mourning the past
There is one certainty: there is no going back to how it used to be. This is not a blip, like a small dent in time that we will climb out of to a continuation of the past in the same format as before.
I think bereavement stages can help us here. To remind you, they are: shock (denial and isolation), anger, bargaining, depression and acceptance. Here is how these stages may apply to us right now:
- If you are waiting for the past to come back as it used to be as of 1st July 2020, you are in denial
- If you are busy blaming a country, a government or a person for the current situation, you are stuck in the anger phase – not a good place to be, but at least you have moved out of denial
- If you are borrowing money left, right and centre and expect that you will be able to pay it back with no cost-base changes, then you are still negotiating a way back into the past as it used to be. A mental readjustment is sorely needed lest you get yourself into too much debt
- If you are not even borrowing but have given up entirely, this is a sign of depression. You are closer to acceptance than you think, so read on.
The key to successful mourning is moving fast to acceptance that the past is dead; whatever life looked like for you in January, that is not coming back. We need to move to planning a different reality. And now is the time for planning as the summer months will be the most difficult cash-wise, as all the spending from lockdown will catch up with us.
Make sure you are and stay healthy
First, before any planning for the future, make sure you stay healthy and breathe freely. That is now the most important – staying healthy. If you are ill, plans are not worth the paper they are written on.
The need to develop planning scenarios: – all forecasts are based on educated guesses
A reduction of uncertainty is the basis of all decisions. Right now, uncertainty is overwhelming, to the point of paralysis. Cannot see beyond July? No one can. Consultants’ roles are also compromised as we don’t have a time machine to visit the future, see what worked and what didn’t (and why), and come back to tell you.
Fortunately, we do have a semblance of a time machine due to the nature of pandemics – there are countries that have already experienced coming out of lockdown, in some cases after even more severe restrictions than the UK. Discussions with businesses in Germany and Spain indicate that ‘coming out’ is unnervingly close to ‘staying in’ – activity is picking up but slowly and in stages. Therefore, we too, in the UK, are more likely to experience a slow recovery, if there is any recovery to speak of. Consequently, we will need to be able to sustain a sluggish level of activity for longer than we may imagine right now.
All forecasts are based on an educated guess. Scenario planning can help with this, allowing us to see more than one possibility (and set of numbers), how each would play out, what works and what does not, and extrapolate from there.
Here are the concrete scenarios we have developed to help with alternative planning: –
THE FLOOR – Pessimist: no additional work
This is a scary but a very helpful scenario to play with. First, the only way is up from there – you cannot fall any lower than having no revenue with the same cost base. It helps us identify the floor – the cash gap at the end of the year if it all disappears down a hole. How much would you need if your expenses stayed the same, despite having no revenue?
This scenario will push your mind to get creative:
- What to trim in costs. Challenge the things you are funding and whether you can terminate them if the demand is not there
- What is the minimum need for borrowing and where it would go.
THE CEILING – Optimist: 50% of the past work will return
No company we have seen has anything close to 50% of their past work in view. You can try to forecast on this assumption, but you will be taking a very high risk. There is a possible second wave of the virus in the autumn that may or may not require another lockdown. At that point, most of the resources that were thrown out by the Government this time may no longer be available in the same measure. The UK is also in the unfortunate situation of having to wait for another decision – that of the extension of transition or a hard Brexit at the end of December 2020. Even your most loyal clients may no longer have the funds that they had at the beginning of the year to continue ordering.
If you forecast too optimistically, it may look like you don’t need to do any rethinking. That is a dangerous position to take in a constantly shifting reality.
THE SOLUTION – Rational: between 20% and 30% of the past work (for example, current loyal clients) will continue in the second part of the year PLUS some unknown work that cannot be forecast until June
Most companies we have seen still have 20% to 30% of their usual revenue trickling in and that looked like a good basis to forecast to the end of the year. The best we’ve seen were in the range of 40% of usual revenue coming back, but since we are only at the beginning of May, it is yet to be proven that it will actually reach that level.
Playing with this scenario will help you see what additional structural costs you need to adjust in order to survive. It may be that this is the moment to consider your number of employees if June does not bring some relief. Additional sales and delivery channels may also be options to consider for cost purposes. Or completely new revenue streams – when you are no longer what you used to be, but something else entirely. For example, HR services switching to outplacement support, or media events services pivoting to corporate engagement services.
It will also try your patience as it is just a partial model, as you will need to wait until June to flesh it out. But it is the most rational of all the scenarios. And it will push you to get creative with your products and services.
We think you should play with these scenarios now rather than later. And that you should not borrow money before you have, no matter how attractive the offers are.
Get yourself ready psychologically for a post-pandemic world, in whatever shape and form that will take. Better still – we have an introductory offer for you that suits even the poorest budgets.