Covid 19 – Scaling down

The challenge faced by businesses during the current economic and social crisis is unparalleled.

Having gone into a complete lock down from March 2020, most business would have experienced a zero or, at best, near zero revenue scenario.

On the other side, overheads continued to be incurred. Rentals needed to be paid, as were employee salaries, among other fixed expenses.

The challenge therefore is how to sustain the business without any cash inflow. Do you cut back? If so, what do you eliminate from the equation?

Most fixed expenses would have been locked in. Rentals, for example, would be contractual, and would therefore not be an option. The only possibility here would be to negotiate, and indeed, some landlords have been sympathetic and have either waived rentals or reduced it.

Letting go of employees would be another option to consider. However, this has a human factor. Letting go of employees who is a drastic move, and should be as a last resort. Even then, if you let employees go now, how would the business cope when things pick up again? Chances of getting the same employee back would be slim to none.

Perhaps now would be a good time to take a serious look at your cost structure, i.e. types and relative proportions of fixed and variable costs that is incurred in the business.

There are costs, both fixed and variable, that a business incurs which can be better managed. These would usually be accepted as a normal cost of doing business during better times. However, much of these could be scaled down and/or eliminated.

Then there are hidden costs that are incurred. Does the business really need a big office space? Does it need 5 phone lines? Do multiple copies of documents need to be printed? Can a task be streamlined so that the turnaround time is less?

If you have not been paying attention to these details, then your business would be experiencing difficulty in coping.

Take a step back and review what is and is not necessary to ensure not just sustainability, but also resilience. Put in place measures that will have a positive impact not just in the short term, but also in the long term.

Stay safe.