The Institute of Risk Management South Africa (IRMSA) recently launched their South Africa Risks 2020 Report. The underlying theme of the report is “risk resilience” and more specifically a resilient South Africa that can tackle any challenge that the country faces, regardless of which government is in power or the actions that governments may or may not take.
To quote Berenice Francis, IRMSA President, “It is time for ordinary South Africans across all walks of life to understand their leadership roles where they work and live, and to take accountability to realise our common purpose…caring is the springboard for action.”
This call to action has come sooner than expected – in the terrifying form of the Coronavirus.
So what is a small, micro, medium or even macro enterprise to do to ensure that the virus does not lead to literally closing the doors?
What Can You Do?
To ensure that you evaluate your risks and take considered action, it is advisable to implement a proper risk management process – which will be discussed Part 2 of this article (to follow soon).
As a guideline, consider the following areas, in evaluating your risks:
1. Affected markets: Do you have products or services that are linked (directly or indirectly) to markets such as China or Italy?
2. Business Continuity: Dust off your business continuity plans and evaluate the following:
a. Rental or Bond: Negotiate temporary suspension of your premises rental or bond with your landlord or bank respectively.
b. Working Capital: Negotiate extended terms with creditors (especially if they are large corporates) and at the same time see if you can get earlier payment from your clients (for example, if they are large corporates), as well as overdraft facilities with your bank.
c. Working from home: Evaluate if this is a feasible option for your business. Some of the challenges include increase in data costs, costs to set up employees with equipment required to work from home, increase risks of cyber-attacks and protecting client information.
d. Cancelling travel plans: Work out cancellation costs/negotiate taking a rain check on travel, accommodation, etc.
e. Legal: Review all legal contracts such as sales or purchase contracts to understand the impacts of not being able to meet your obligations. Get legal advice regarding “force majeure” and, if applicable, with respect to the negative impacts of the virus.
f. Technology: Make full use of technology to communicate with all your stakeholders and to hold meetings, etc. You may need to invest in basic technology and/or update your software. The reduction in travel and entertainment costs should provide some respite against these costs.
g. Supply Chain: Evaluate supply disruptions in terms of its impacts on your revenues and operations (business continuity). As noted above, talk to them to make alternative plans, especially financial arrangements. Seek out alternative supply channels.
h. Insurance: Meet with your insurer/broker/advisor to review your existing policies. Evaluate impacts of claimable/non-claimable areas. Most business interruption policies require damage to property (fire or floods) before a policy will respond. The virus does not fall into this category, but some insurers have started considering such cover. Explore your options to include such cover to cater for future catastrophes of this nature.
3. Communicate: This is critical and cannot be stressed enough. Communicate your mitigation plans to employees, customers, suppliers, partners, etc. and update them on a regular basis. Keeping them informed will contain “panic”, “hysteria” or “overreaction”.
4. Employees: Talk to your employees to ensure that you manage their reaction and expectations. Doing so will help you manage you own reactions. As a leader, remain calm and in control. Talk to them about your response plans and consult them on areas where they are affected. In most cases they have very good ideas, especially in the face of a major crisis. Be prepared and protect and care for your employees. Provide the necessary education and channels to keep them informed, especially on how to manage their exposure to the virus.
5. Scenarios and Sensitivity Analysis: this is not business as usual, so “stretch” your scenario and sensitivity analysis and include a “scorched earth” scenario. This means, make assumptions that are “too ghastly to contemplate”. For example, assume a scenario where you lose 80% to 100% of your income for say the next 3 to 6 months. What will this mean for your business? Include your accountant and legal advisor in this analysis.
To some small businesses the virus could mean closing your doors, especially if you do not have the reserves to sustain losses for some time to come. To other businesses, this is an opportunity to “re-evaluate” the way your business operates, make major adjustments or even start with a clean slate.
As a small business, you have the advantage to respond quickly and at a far lower cost compared to large corporates. Small businesses are agile.
As a small business, you also have a greater ability to adapt and turn a crisis into an opportunity. In some cases there is an opportunity to scale up or reconfigure your business for the longer term, thus making it more resilient to other external calamities.