Sep 24, 2020 / News

Business Consulting / COVID-19

Business Resilience and Recovery Checklist

There are several key challenges for business leaders to address in order to plan, move forward and grow.

For many businesses, the impact of the COVID-19 outbreak have been profound ranging from operation shutdowns, supply-chain disruptions, cashflow pressures and staffing issues.

During the initial response phase, business leaders were faced with making improvised decisions to minimise the short-term impact.

Now several months later, businesses are faced with navigating the next phases of business recovery and rejuvenation.

Below outlines our suggested approach to resilience and recovery. Armed with these insights, businesses may be in a better position to prepare themselves for business disruption and find their competitive advantage.

The main areas of focus include:

• Financial resilience
• Operational and commercial resilience

Financial Resilience

This is the pinnacle of building resilience as without it, operational resilience cannot be sustained.

Key challenges faced:

• Balancing short-term liquidity and risk.
• Liquidity pressure from uncertain demand and supply chains.
• Prioritising and timing of actions for survival of the business.
• Customers are holding onto cash and suppliers are in search for quicker payments, resulting in escalating cash burn.
• Real-time financial data may not be sufficient to effectively monitor cash burn.
• Burden of fixed costs such as salaries and rent although revenue generation may be disrupted.
• Overheads reduction is imminent however difficult to determine to what extent.
• Existing bank covenants may be breached, with limited access to further debt financing. 

Checklist for building resilience:

• Revisit contingency planning - introduce a three-way cashflow forecast to stress-test different scenarios potentially faced by the business.
• Prepare a detailed plan of implementation for each scenario including best-case, most likely and worst-case. Be flexible with these plans as the business may face a different scenario than expected.
• Host a roundtable with stakeholders who are involved with contingency planning and list action points required.
• In the three-way cashflow forecast, focus on stress-testing bank covenants to determine the estimated headroom.
• Follow up with lenders if the forecasts indicate cash shortfall, discuss the plan to manage or amend existing debt.
• Adopt a rolling forecast to forward plan the liquidity position. Highlight the variance between current and prior forecasts to management. 
• Incorporate the short-term cashflow position in the financial agenda of the management report for discussion.
• Identify key revenue drivers by product line/service and customer, to analyse likely changes in demand.
• Identify highest gross margin by product line/service, customers and suppliers.
• Analyse the long-term behaviour of customers and suppliers and potential short-term disruption.
• Re-assess product prices and customers sensitivity to change.
• Re-engineer a customer's journey and analyse how their behaviour can be influenced.
• Update financial forecast models to understand working capital demands of the business as it recovers.
• Re-examine overheads to save cash immediately and minimise expenditure. 
• Re-evaluate the ability to extract real-time data and reports to make real-time decisions.
• Identify targets both financial and non-financial and ways to measure these effectively.
• Initiate negotiation arrangements with key suppliers and landlords to account for flexibility.

Operational Resilience

Business disruption on operations is centred on people, supply chain, technological, governance and risk control.

Businesses need to seize the opportunity to reinvent and permanently change the way they operate by redefining success and how to measure it effectively.

Key challenges faced:

• Current lockdowns have restricted movement between suppliers and customers.
• Immediate assessment of resources available and required to achieve success.
• Improve internal processes (to get more done with less resources or tap into strengths).
• Determine which parts of the business, by product or service, needs to be temporarily halted.
• Limited understanding of how much working capital may be tied up in inventory.
• Managing high-risk contracts with suppliers/service providers.
• Need to use new and untested suppliers in unfamiliar markets with unknown integrity history due to supply constraints.
• Review whether collaboration tools and remote working solutions are robust enough to cope with demand.
• Leverage real-time data to provide insights into rapidly changing behaviours of customers.
• Increased opportunities for fraud given weaker control environment imposed by remote working.
• Reinvent processes, controls and systems to reflect the ‘new normal’ and lessons learnt during the crisis.

Checklist for building resilience:

• Narrow down the core business and how to protect it from further disruptions.
• Conduct a strategic review of the existing operating model, with aspirations to innovate and rebuild a plan for the recovery phase.
• Re-assess commercial agreements and be prepared to re-negotiate for terms that minimise risk.
• Ensure feedback and continuous improvement mechanisms are in place.
• Shift the mind-set from crisis mode to the 'new normal'.
• Identify and adopt best practice developed during the time of the crisis.
• Reinforce the business' core values with all stakeholders, particularly customers, suppliers/service holders and staff.
• Offer a program to support the mental health and wellbeing of staff and reduce reliance on workers' compensation.
• Foster a culture of innovation (using a bottom up approach) to gain a competitive advantage.
• Identify the point of differentiation of competitors and revise the marketing plan. 
• Implement company policies and processes that support flexible working.
• Rely on real-time data to help raise early alerts of potential disruptions and issues to proactively manage performance and drive prompt resolution.
• Consider replacing high risk or low value-adding processes with automated alternatives if feasible.
• Restructure supply chains to be more flexible and agile in order to cope with a crisis.
• Provide customers with ability to access information using social media channels to reduce the volumes of inbound calls and frustration at long wait times.
• Review IT risks and control frameworks, particularly in the area of fraud.
• Prepare a risk controls health check to test that everything is working as expected. Make adjustments to mitigate risk to appropriate level.
• Identify vulnerabilities and develop viable solutions for activities which were severely disrupted.
• Undertake dynamic risk assessments to understand the impact of risks on operations.

How can Nexia Edwards Marshall help you?

As you and your business move away from reacting to COVID-19 and towards planning for the future there are a lot of steps to take, which can seem daunting at the outset. If you would like to review your business resilience and recovery plan with one of our Nexia Edwards Marshall Advisors please get in contact with us.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.