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Financial Planning During COVID-19’s Economic Crisis

As our world continues to face the evolving challenges posed by the COVID-19 virus, with entire industries collapsing, unknowable effects to our global economy as well as of course the saddening loss of lives — many of us are left wondering where to from here?

To help guide some of the difficult decisions you may be facing right now, (and hopefully offer some encouragement that we really are all facing similar challenges right now) we’ve asked our Head of Finance, Ndulamo Pholi to share some things to consider during this time.

Our co-founders Duncan Macintosh and Tim Burgess also share some of the changes they’ve made for Shield GEO and how we are moving forward into an unknown future.

Reaffirm company values

Team dynamics and company culture are hugely important during times of crisis.

It’s highly likely that each of your employees will be affected by these changes in some way, so it’s important to treat everyone with care and kindness. Check in regularly and ask about their experiences, which could be vastly different to your own. Whether it’s having sick family members, children home from school, or simply the emotional toll of being in isolation — it’s not an easy time for anyone.  While we are globally affected, each country is responding in its own way. So while restriction may be easing for some, others may still be in strict lockdowns with very little flexibility and control. Levels of trust in governments are different everywhere, as is access to healthcare, basic food and necessities.

“Practice a lot of empathy towards international staff who are going through a lot of stress,” Ndulamo says. “Especially those employees who are not in their home countries.”

While work in this time could be giving your employees a sense of normalcy in an otherwise uncertain time. They’re likely also battling with some distractions as well as potentially low motivation.

Ndulamo says this is the perfect time to reaffirm company values, as these are what bind people together and really offer a sense of purpose. He encourages business owners to, “keep an open-minded worldview and a values-driven outlook,” during this time.

Our co-founder Tim Burgess agrees, “Our amazing team and our company values have been great anchors during the uncertainty. And we are especially grateful for the collaboration we have with our clients and partners,” he says. “It is a great solace to know that we’re not going through this alone.”

Making a point to encourage, call out any successes or wins, and genuinely support your team will all make a big difference in the overall experience of working through such a difficult time.

Ndulamo also recommends investing in your leaders. They’ll likely be taking on a more supportive role during this time and potentially taking on extra work that’s been redistributed in cases where employees may be taking carer or sick leave or working revised hours due to caring responsibilities.

“Your leadership’s competence is [also] critical for planning, this seems obvious, but it’s often neglected,” he says.

Communicate with transparency

While it may be your instinct to hold back information about how your business is faring during this time, Tim is an advocate for transparency with your employees. In addition to hopefully providing employees with some sense of security, it also shares the idea pool.

“People are more enterprising, creative and committed when they know your plans and the size of the challenge ahead,” he says.

For Shield, this looks like sharing projections during monthly all-hands meetings as well as our monthly numbers as always. Both Tim and Duncan have also reaffirmed that they’re open to answering any questions from anyone. All with the aim to reassure our team by remaining open and transparent.

It also allows the entire team to be involved in any solutions to potential issues. As an example, Tim says — “Let’s say we absolutely tank, and we have to make half the people redundant.” (He reassures me this is just an example!) “and we let people know Friday’s their last day. Someone responds, ‘Oh, that’s a shame, why didn’t we think about selling ice cream? And we realize if we had talked about selling ice cream three months ago, we wouldn’t be here right now because that’s a brilliant idea.”

Tim’s point is this, by hoarding the information they limited the problem-solving capabilities to just those who knew about it. However, he does admit there still needs to be a balance.

“I don’t want to freak people out too much, so there’s probably a line there,” he says. “People are already burdened, I don’t want to overburden them.”

Seek government support

Something Ndulamo encourages all businesses to look into, and something that we’ve been supporting our clients to do is seek government assistance where possible.

“There are a lot of government interventions depending on the country in question,” Ndulamo says.

Concessions in your home country may be different from those offered in your employee’s country, so it’s important to keep across global changes to see what might affect you.

“Some of these come in the form of payroll tax exemptions, payroll subsidies, options for deferral of tax to future periods, low-interest working capital loans or seed funding,” he says.

“The same principle would apply to private donor funding available for distressed businesses.”

Of course, this shouldn’t be your only response to potential economic trouble, but it is there to help those who need it. So make sure you take advantage of what’s available to you.

Tackle cash flow issues

During uncertain times, “it’s a good time to dig into your cash flow and reassess your debtors,” Tim says. Once you determine where you’re facing the most risk, you might be able to direct extra resources, people power or strategies to reinforce this step in your process.

“One of the biggest risks to us isn’t just people getting terminated or people offboarding with us,” says Duncan. “But it’s also clients that don’t pay invoices, not because they’re tardy, but because they are going bankrupt.”

This means that, during this time, instead of focussing all of our energy and resources on retaining our clients (or finding new ones), which admittedly are still essential aspects. It means we are also focussing on understanding our client’s unfolding situations.

Avoid downsizing — where possible.

Of course, some industries have been hit harder than others. With forced closures of many hospitality operations and severe restrictions to others, it’s completely understandable that maintaining a full staff throughout the duration of the pandemic might be impossible. However, not everyone is affected the same way. While it may be tempting to cut costs wherever possible, Ndulamo encourages any businesses who can, to keep downsizing as a last resort.

“Especially as we put into perspective the investment that has been sunk into staff over the past years,” he says. “As well as the cost of hiring [knowing you’ll be] needing the same staff in the near future.”

This is definitely the stance we’ve taken at Shield.

“The last thing we want to do is have to fire anyone,” Duncan says. “It’s not what we believe in and also it’s so inefficient — you have to go and re-hire somebody in 6 months back to the level that these people are at now — that’s just bad business.”

Tim adds, “It’s important to think about how you’ll come out of the recession, functions like sales and marketing will make a big difference in how quickly companies rebound.”

However, that doesn’t mean there aren’t other options to reduce costs.  We’ve supported our clients to implement various strategies including reducing salaries, postponing bonuses or pay increases and revising working hours in line with revenue growth patterns. In some cases, consuming accrued annual leave or unpaid leave might help to get you over the line, with the opportunity to reinstate regular working hours once revenue picks up.

For example, one client was debating whether to put their employees on a government subsidy plan where their employees would be furloughed with 80% of their salary paid by the government. While initially, it seemed as if this would help them out, with two employees they would reduce their cost by 40%, but when working with people it’s never just a financial decision.

As we talked through their situation, our client also considered that with furloughed employees there would be no one available in that country if work picked up. It was a possibility that without working together their relationship with their employees may deteriorate. This could lead to their employees finding other work and needing to replace them which can be difficult, particularly when trying to source highly skilled professionals, not to mention the added costs.

“Layoffs, salary reductions and furloughs have a big impact on all your employees,” Tim says. “You might save money over the next few months, but what will be the long term impact on your engagement and retention? How can you explore this in a way that shows your team that you value them and are trying to make the best decisions in a difficult situation?”

One option could be to redistribute staff across teams in line with new workloads. Which is something Shield is looking into if the opportunity arises.

“We would reallocate some of the resources to new projects as much as we could,” Duncan says. “We can also reassign if we get less busy. If, say, implementations are less busy we could reassign one of them to, say, projects or accounts or wherever they’re needed more.”

You might also consider recruiting staff with the required skills in alternative low-cost markets. In cases where you may need to hire someone new, looking into areas where localized salaries are lower, could help by lowering your risk in these uncertain times.

Modeling

One of the most effective actions to take during this time, according to Tim, Duncan and Ndulamo is modeling and projecting for various potential scenarios.

“Keep [your] eyes on the external macro-economic factors that have the potential to impact on the health of [your] businesses,” Ndulamo says.

He suggests tracking revisions to gross domestic product, unemployment data and sector-specific growth data as well as any fiscal and monetary policy responses to the crisis and relief responses for financial services, corporates and households in all the countries you do business.

“The essence of getting a hold of this data is to contextualize it in view of your own business. What do these statistics mean for the business in terms of sales demand, input costs and input availability, labour demand and costs and asset utilization?” Ndulamo says.

He recommends World Economic Outlook for this data, as he finds it to be the most reliable and up to date.

“Information is key when planning in uncertain times. Get credible, relevant and timely information to equip your planning,” he says.

From this information, you can begin to develop plans and projections for what might happen in the future.

“Creating multiple scenarios for your business will prove critical in establishing practical plans that allow for few surprises in the near future,” Ndulamo says.

It means you’re not putting all your eggs in one basket and you won’t have to scramble once you start moving towards one direction.

Once you have some potential routes laid out, you can then start to ask some more in-depth questions, which could inform you — as early as possible — which direction your business is moving.

“We’d done some of those metrics around sales, terminations and total volume of business, but what we hadn’t done is take a step back and go, well what might cause this?” Tim says.

“If we were going to lose 50 employees a month — what would actually cause that to happen?”

Instead of living in fear of the worst-case scenario, or just playing the waiting game to determine which of your plans will come into effect, you might be able to identify some early signs that would suggest one path over another.

“We’re asking questions like — how can we tell how the US is doing? How can we monitor what our customers are doing, and saying, and are they behaving differently? Are they looking at different things on our website? Are their enquiries different?” Tim says.

“What we’re trying to do is identify signs or triggers.”

By going through this process, you’ll now have several thought-out plans to execute as well as some sort of method to identify, early on, which scenario is more likely.

“At the moment it’s speculation, but as we start going down that path we can start to flesh that idea out and explore those options,” Tim says.

You’ll be able to execute your plan quickly and thoughtfully, instead of panicking, and it might even give you an edge over competing businesses.

Look for business opportunities that provide long term value

If your traditional income flow has been compromised or affected by the COVID-19 pandemic, you may want to consider diversifying your business offering or tweaking your business model to lower costs and open up your potential income stream.

“Businesses may want to consider providing services that they previously outsourced,” Ndulamo says. “[Or offer] both backward and forward integration of their business value chain.”

He recommends going after low-hanging fruit but always avoids short-term approaches. Instead, look at what will add value to your business, even long after things shift back to something more recognizable.

This may take the form of entirely new business opportunities. “This is particularly relevant to businesses in sectors whose growth is in doubt”, Ndulamo says.

Perhaps entering new markets, diversifying your product offering or going after new demographics.

“Companies might find that their foreign markets become even more important by providing diversified revenue,” Tim says. “Every country is going to be affected slightly differently from a health perspective and from an economic perspective. If your domestic market is hit heavily, that overseas revenue can be crucial in outlasting a recession.”

For Shield, this may look like taking advantage of lower workloads and investing resources and time into improving internal processes.

“Typically people have been busy, so there are all sorts of stuff we’ve always wanted to do, but haven’t had the time like improving instruction manuals or improving a process of training, working better with other teams,” Tim says. “So there’s a bit of that housekeeping that we can do.”

There may also be opportunities to change some of our current business models into something more valuable long term.

“One of the things you should focus on is what’s going to help you now and in the future,” Tim says. “Is there something you could do that will help you now, and it’ll make a big difference when you get back to something approaching normal?”

Plan for uncertainty

Each of these recommendations aims to support thinking and discussion around what could be next for your business. But it’s important to remember these are incredibly uncertain times.

“The hard thing is we’re in uncharted territory — who knows what’s going on,” Duncan says. The fundamentals of this crisis aren’t economic; they’re health-based, which could mean anything.”

All we can do is prepare as best we can for this uncertain future, and then keep readjusting our plans depending on what this new future looks like.

“We’re going to start moving. We can’t help it; time keeps moving. So what we’re trying to work out is which [direction] are we moving towards,” Tim says.

“It’s pretty clear that our best-case scenario isn’t happening. So, we make a new plan.”

– Bree Caggiati

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