“But there are also unknown unknowns-the ones we don’t know we don’t know. And if one looks throughout history, it is this category that tend to be the difficult ones” Donald Rumsfeld
How did the Coronavirus become the unknown unknown of 2020?
Coronavirus is the unknown unknown of 2020. With lives at risk, we hope that conditions mend as rapidly as possible. In the meantime, we should brace ourselves for volatility and have an alert mindset for the situations that may unfold.
Our priority should be the health of our employees, family, friends and communities. However, this note is about something else: safeguarding the wellbeing of your business while handling prospective business ramifications as a result of the increasing consequences of the virus.
What are the challenges?
Fall in business activity. Certain businesses have experienced a severe drop in growth rates since the start of 2020 as the consequences of the virus spread. We expect this drop in business to continue for months to come.
Supply chain dislocations. The unparalleled lockdown in China is bluntly affecting global supply chains. Construction, retailing and direct-to-consumer firms may need to procure replacement suppliers.
Travel bans. Many countries have placed travel bans to contain the rapid spread of the virus upending daily life for millions of people around the world. While travel and tourism companies are directly impacted, other companies remain at risk due to cascading economic effects.
Combined, it will take substantial time, maybe numerous months, before we can be certain that the virus has been controlled. It may take even longer for the global economy to bounce back, as such, some of you may encounter challenging situations, accordingly, we suggest you stress test the key assumptions you may have about your business.
What are the key assumptions?
Cash. Do you really have as much cash as you think? Could you survive a few poor months? Have you crafted contingency plans? Where might you cut costs without deeply wounding the business?
Capital Raising. Funding could tighten substantially as happened during the GFC. What would you do if capital raising becomes difficult over the next few months?
Revenue forecasts. You need to expect that your customers may revise their spending behaviours. Sales that appeared certain may not proceed, as such it is vital that you are not caught behind the eight ball.
Having helped many businesses during challenging situations, we have learned an important lesson, nobody ever regrets making quick and decisive adaptations to evolving situations. In tough times, sales and cash resources usually decline quicker than costs. In certain ways, business reflects biology. As Darwin inferred, “those who survive are not the strongest or the most intelligent, but the most adaptable to change.”
How can Charles & Co. help you?
Charles & Co has helped numerous clients navigate challenging situations and distressed deals. Acting early with a well-crafted adaptable strategy is the key to increasing the prospects of surviving during tough times.