Change your strategy before you take “free” funding
Go Back To Basics
Over the last three weeks since the lockdown was announced we have seen panic run through the business sector, particularly the small businesses which is that portion of the market in which most franchisees fall. The first reaction of most of the operators has been to look to where they can get additional loans to tide them over the next few months. They are then hoping that things will get back to normal. All that they will have to figure out then is how they will repay these loans.
My opinion is that any business that follows such a strategy has just signed their death knell. You will ask me why am I so bold to make such a statement and my answer is this – the solution to this challenge is not resolved by throwing money at the problem or by cutting costs to fit an old business structure. Rather this predicament which businesses face calls for a revision of your business strategy. It is not the time for smart marketing campaigns or clever television ads. It calls for each business owner to go back to basics and look at their business again.
It Is Not Optional
The health and safety of your staff and customers is the most important consideration that you have to look at when developing your new business plan. Unless you address this, you will not have staff or customers. You understand that without these two that you do not have a business. Staff are going to have to feel safe coming to work and understand that they will not be putting their lives at risk by being in your environment. You may think that everyone fears joining the ranks of the unemployed, but they fear the public health system even more. For customers, the decision is much easier. If there is even the slightest inkling in their mind that the health practices in your establishment are questionable, they will simply vote with their feet and go elsewhere.
The impact of social distancing has been relatively easy to manage because we have all been at home. This is going to be so disruptive when we are all back at our places of work. Can you imagine having to have staff all wearing gloves, masks and being required to be spaced two metres apart? What for example will that mean to how your kitchen layout needs to be re-designed, or the workshop, or the gym and the list goes on.Having a manager at a restaurant walking over to see you to ask you if the meal is okay is a thing of the past. You will not be given a menu and a wine list when you are seated in a restaurant because those are now classified as health hazards. What is the new restaurant going to be like? That is what you will be working on.
If you do not comply with the new health standards, it is simple; the health authorities will close the business down. Gym members will not go to a gym where the equipment is still spaced the way it was before the lockdown. You may feel that it is an unrealistic expectation for businesses to reinvent themselves to meet such standards. You will be wrong. This is not optional. If you think it is going to be difficult for your business, spare a thought for airlines. They are going to have to reconfigure the seating in every plane. You know that they literally resized seats, did away with reclining seats and reduced legroom to cram the maximum number of passengers in their aircraft. Now passengers are going to be spaced or they will not get on that plane. Do you now see the implications? It is not optional.
The New Strategy
I took this announcement from a news article dated 15 April 2020,
“Woolworths has announced that it will be expanding its shopping options to customers through its new contactless, Click & Collect drive-through stores. Woolies shoppers will have the option to do their grocery shopping, without having to leave the comfort and safety of their cars.”
I doubt that this shopping option was in their plans even two weeks before the lockdown, but you know what? Going forward you will have more and more Woolies drive-through stores. The customer is king. This is also just the beginning of the shift in behaviour. You are going to hear the words customer experience, contactless and safety more and more to describe the new business environment. I come back to my point which is that the first critical issue to address is the change in your strategy to ensure customers feel comfortable and safe in your establishment. Once you have gotten over that hurdle you will need to answer the second question which is how to ensure the health and safety of your staff. There is a whole re-education and training program that has to be undertaken. Everyone has to appreciate that they are responsible for each other’s health and safety because no-one understands how to treat the virus. So it is about prevention. When you have answers to those two questions then ask how much the cost will be to implement these changes. Then we are back to the question that you asked at the beginning – where can I raise this amount of money?
Yes, business owners are stressing, panicking and can’t see a way out of their current situation. I am not going to trivialise what so many business owners are going through right now. They are thinking of the financial ruin that is staring them in the face and are feeling helpless. So, it is for that very feeling that should make you ensure that the decision that you make right now is not going to be the one that destroys your business. Think about it this way – that last bullet that you have has to make all the difference otherwise you are gone.
The Answer
Once you have gone through the shock and trauma and have now regained your composure, the new strategy document which I have been discussing makes a lot of sense. You will have cleared your head enough to actually convince a funder to look at your plans. You can then know that you are on the way to recovery. But that will happen anywhere between two to three months from today. You are going to want to stop reading at this point. You are saying that this article made sense up to this point but now you are confused. How do you pay the expenses in your business?
The answer is somewhat controversial, you don’t. You negotiate everything, beginning with rent, amounts owing to suppliers and yes, salaries. Everyone becomes part of the solution. They will support you if you have a credible plan to take the business forward. Make requests from each one that six weeks ago you would have been too embarrassed to even utter from your lips. You will be surprised your landlord will give you six months’ rent deferral but remember to start the negotiations asking for an eighteen-month deferral plan. Ask your creditors for a fifty percent discount, plus six months to pay the discounted debt and on top of that, no interest charge. You are calling on the fact that you have been a good tenant for the last x number of years and did good business with your suppliers.
In the case of franchise fees or royalties and advertising contributions, you are going to request that the franchisor suspends these for two years. It requires you to be that bold. You are thinking to yourself how will the franchisor survive? The franchisor is focused on keeping the good operators in business and protecting the brand so they will come to the party. I am not suggesting that you will get everything that you are requesting. Maybe not. You are trading on the fact that you have been a good operator and the franchisor will be willing to back a good jockey any day.
Understand that you are in a strong negotiating position provided that you have run a good operation. You are not in this situation alone. The business world is in a mess right now, not just your business, so leverage that to get yourself the best deal.
Plan B
You may not rest easy with what I have said or see merit in it and are still nervous. You will want to know who you can approach for funding that is available for businesses in distress as a result of the lockdown, so I have included the links below. But do not make this your first option or only option. If you are doing that, I can assure you that your business will close within a year of receiving your first funding. Please note I said it will close, not may close.
For further information about details mentioned in this article, please get in touch with RAiN
Ian Pierce was an accountant from birth. After qualifying as a chartered accountant in 1986, he gleaned extensive local and global experience at Coopers & Lybrand and Deloitte & Touche. He set up a practice in South Africa in 1991 and today specialises in company restructuring and privatisation, audits, due diligence reviews, transactions and widespread corporate consulting.
