AVOIDING PANDEMIC PANIC: Planning for an uncertain future in business
Published on 05 November 2020
Upbeat about the future of small business and startups in the Australian innovation ecosystem, Director of Startups at BDO Brisbane, Marc Orchard, explains to Rockhampton Regional Council’s SmartHub Business Manager, Elize Hattin, how businesses can use the lessons from COVID to plan during uncertainty. HU
HELPING BUSINESSES IN HIGH TOPS
Passionate about helping world class entrepreneurs create the exceptional companies of tomorrow, Marc Orchard describes himself as ‘atypical’ of an employee of an accounting firm as you are probably going to find.
“I'm 6'5" and I run around Queensland In my high tops…I'm definitely not an ‘accountant’, which is great because it means I can make fun of how many Excel spreadsheets they all have,” he jokes.
With a familial background in financial planning working at Macquarie Bank and then AMP, Marc ran his own financial planning firm for several years.
He says he made every single small business mistake there was.
“Everything I have ever given as advice to founders since then has been learnt the hard way,” Marc says.
After selling his business, a signed noncompete meant Marc had to look elsewhere for business inspiration.
Marc’s interest in how tech startups’ work and their velocity of growth, saw him move into a role as Brisbane City Manager of coworking and digital startup community, Fishburners.
From there, Marc moved on to large accounting firm BDO, which has a specific interest in startups.
“We are looking for early stage high growth companies who are interested in global opportunities. We see them as potentially some of our most lucrative and best clients of the future,” he says.
One of Marc’s biggest frustrations while at Fishburners was that startups had both simple and complex financial needs, at the same time.
Often, he said the big four banks would present a workshop at Fishburners and when a startup would follow up for advice, they would be quoted $20,000 to a $100,000.
At the same time, Marc found a typical suburban accountant lacked the expertise to able to help a company that was looking at investment or looking at shareholders agreements for multiple founders or looking at international expansion.
“Fortunately, at BDO I've been given a platform here where I have a global network of accounting firms around the world who have the capacity to be helpful.
“My background being very specific to startups means that for most early stage founders, I act like the application programming interface (API) between the accounting team, where I translate the numbers the accounting team is supplying and giving them some context and some understanding.
“I can help the startup to explain to the accountants and our different tax teams at BDO, how they can be most helpful regarding plans for future growth,” he explains.
RIDING THE FIRST WAVE
BDO has had a partnership with Advance Queensland and the Chief Entrepreneurs Office in Queensland.
When the pandemic hit, Marc recalls the firm was concerned that a lot of startups would be in a situation where they were financially vulnerable.
“I was wanting to make sure that startups had the support they needed to survive through the early parts of the pandemic and then moving forward, were getting some certainty about what could happen in a world we hadn't really ventured into before.
“Advance Queensland had invested significantly to the innovation ecosystem and were really keen make sure that those businesses that had been supported were able to continue going into 2021,” he says.
So how do startups and small businesses plan for an uncertain future?
Marc says the early stages of the pandemic was a wonderful example of going into a time of uncertainty very quickly.
“Within a week most of us went from laughing at people who were buying all the toilet paper to suddenly being in lockdown…there was quite a significant shift in market conditions very quickly.
“We were sitting down and talking to our clients about whether they were under threat? Was there a situation where their market had completely changed, was there an issue with fundraising they were halfway through a process of, and was this going to change? What did it mean to them and what did success look like for them for the rest of the year?” Marc recounts.
“For some startups it was survival, for some small-medium enterprises it was very much around getting back to core business and making sure that they were viable and looking at government programs for support if they had a significant reduction in cashflow,” Marc says.
While approx. 80% of the small business and startups Marc was working with had been negatively impacted by COVID, 20% of them soon realised they ‘had a rocket ship built underneath them overnight’.
“One was a meal delivery company that went from having 200 orders per day to having 4,000 orders per day.
“When we think of uncertainty, we often think about being at risk, like we're going to lose something or ultimately our cash position or our business model might not quite stack up.
“For a lot of businesses, the most stressful thing was this once in a lifetime opportunity they would have loved to take advantage of, but they didn't have the internal systems or processes to manage that at scale,” he explains.
SURVIVE, UNDERSTAND, AND THRIVE
The process adopted by BDO to support startups through uncertainty was around surviving, understanding, and thriving:
Surviving - by having a quick toolkit to explore what success would look like, were there any threats likely to stop them from being able to get to the end of the year and, was there anything specific to the business that was causing extra stress?
Understanding – having the capacity to take a step back and reflect on what was happening in market as well as for those with an increase in demand, being able to work out how do you position yourself to make the most of that?
For those who had a decrease in demand or had issues with the ‘new normal’, being able to determine whether they wanted to pivot their business in some way.
The three pivots Marc saw businesses taking in response to COVID were:
- market pivot - taking what they were already selling to a new market because it was now much more viable.
- asset pivot - taking a market they were already selling to and selling something else to them because it was more important in the short term.
- business model pivot - a completely different use of their assets and team to build a completely different business.
“We had a winery in South Australia who’s revenue had mostly come from doing special events like weddings , 21sts and 40th birthdays.
“They were unable to open their doors for three months. So they pivoted and turned their winery into a subscription model e-commerce store where you could buy the different wines and have different wines from that winery delivered every month.
“So, they went from having no e-commerce presence to having a $250,000 worth of e-commerce sales within three months,” Marc recalls.
Thriving - being able to consolidate whatever position they had chosen.
“One of the things I found for all the founders, be it small businesses or startups, is the moment of clarity came when they were able to give themselves some space to accurately make sure that they had survived the initial part of the pandemic or the uncertain situation.
“Accessing really good advice whether from some a mentor or peers or from an innovation hub, their accountant or their advisor, having the external capacity to be able to think through and brainstorm what this new situation looked like, we found most startups actually survived through the pandemic much more than we expected.
“The survive, understand and thrive model we were using here really worked well and we really focused on cashflow in particular,” Marc says.
PIVOTING IN A PANDEMIC
For a lot of startup founders or SMEs, Marc says it was easy for them to default to ‘we need to fix this and just do something mode’ when the pandemic began.
“We had a couple of companies who were struggling to get traction, and the pandemic gave them an opportunity to explore if they wanted to continue with their business, or pivot, or wrap the business up and exit.
“The ones that had the best insights were the ones that gave themselves the space to be able to ask what do I want from my business moving forward?
“A lot of startup founders discovered an increased resolve for wanting to do their business,” he says.
Once businesses realised their intrinsic reason for doing the business remained, Marc says it made it much easier for them to identify new pathways.
For others though, it was a chance to reflect on whether ‘if they knew what they know now when they started the business, would they have still started the business?
“For the founders that say yes regardless of the short-term pain or the challenges, those founders were typically able to find a way through.
“And for the founders who acknowledged they probably would not have started, it was easier for them to pull back on their business, change direction or exit completely,” he explains.
So how do you ensure everyone is on the same journey when your business undertakes a shift in a business model or offering?
Marc says there were a couple of things businesses did consistently; the first being over communicating to all stakeholders.
“Over-communicate to the people involved to make sure that they're all onboard and they see the vision and are willing to back you.
“The second is being noticeably clear about what success looks like. Startups or small businesses who try to do too much coming out of the uncertain period often felt very overwhelmed or caused their team to be quite confused as to what success would look like.
“Lastly it’s a matter of breaking down those bigger goals such as how you're going to get through a pandemic or how you're going to get through a crisis situation into actionable things you can celebrate on a day-to-day basis to keep up team morale,” Marc reflects.
Over-communicating, setting clear and specific goals that people are bought into and then being able to celebrate as you go, accelerates the chances of success coming out of a crisis moment.
CASHFLOW IS KEY
Taking several early stage high growth companies (both small businesses and startups) through a cashflow planning process, Marc discovered the financial literacy of founders was a lot lower than expected, with most ‘managing’ their cashflow through their bank accounts.
“They all logged into their bank accounts and say, "How much cash do I have in my bank today? Right, is it enough to pay my bills? Wonderful, that's cashflow done."
“That's a bad way to manage your cashflow because ultimately not all the money in your bank account is your money, particularly if you've got employees and you're keeping taxes and super income.
“Also, if you're selling services or products, ultimately part of that money is the ATO's money you're collecting on their behalf,” he warns.
If a big change moment happens, Marc says businesses need to know how much of their money is available to use if their business needs to pivot or change direction.
“We typically plan over 90 days and our goal is if we are going to have a cash issue, we want to know somewhere between three to six weeks prior, so we have the chance of being able to do something about it.
“If you're in a service based business or a product business, if you know in three to six weeks you are going to have a cash issue, you can look to try and increase sales or decrease expenses get you through that period,” Marc advises.
During COVID, Marc says many suppliers were willing to negotiate if given sufficient time.
“We did a lot of negotiation with our different suppliers for the companies who saw a cash crisis coming.
“We were trying really hard to make sure our startups understood their cashflow, so that every week they knew how much was coming in, how much was coming out and they could adequately plan for any issues arising over the next 90 days,” Marc says.
UNDERSTANDING PROFIT & LOSS
In addition to a weekly cashflow check-in Marc also encouraged startups to eyeball their Profit and Loss (P&L) statement at least fortnightly, and if they have a budget for the year, compare their budget P&L through to their actual P&L.
“Oftentimes, if you have a head of sales or you have a sales person or somebody who's helping you with the revenue side of the business, that can be a really great way to keep both you and them accountable,” Marc says.
Possibly the most important document that not many startups ever look at is their balance sheet, according to Marc.
He says the balance sheet is vital because it acts like a scorecard as to the volume of assets a company has.
“This includes the cash in our business, our inventory and any other assets like accounts receivables and so forth we could potentially make money from.
“And then all our liabilities which are things like any loans we have, any things outstanding we have obligations to pay, and the equity in the company or the valuation of the company holistically,” he explains.
To summarise, Marc recommends founders should be looking at their balance sheet to make sure that everything is corresponding correctly each month, and should be going through their P&L with a budget to make sure they are on track with the numbers they are expecting for the month, every fortnight.
DON’T PANIC IN A PANDEMIC
Marc’s best advice to business owners experiencing a crisis like a pandemic, is not to panic.
He says the startups, founders or CEOs who panicked and made big decisions very quickly, or took the pandemic to mean their business was terminal, and believed they needed to fire a number of employees to survive, found it difficult to reverse those decisions.
“Sometimes business owners don't realise it's not as bad as what it looks like sometimes.
“If you are feeling like you are not sure what to do with the uncertainty, don't keep that to yourself.
“Share that with people that you trust because you might actually find that there is a lot more help than you realise,” he reassures.
HELLO NEW YEAR
As a final word, Marc reassures businesses that typically speaking, the best time to be in business is on the other side of a recession.
“Australia hasn't really had a recession for almost three decades, so even though the last six months have been really difficult, I'm anticipating that 2021 is going to be a really great year for small businesses and startups, particularly in a place like Australia where we've done a really good job of managing our way through the pandemic.
“If you're in a situation where you are over this year but realistically 2021 is something you're looking to focus on, I believe if you get a lot of your planning done in November for 2021, next year is going to be a really great year and much easier for you to grow your business than 2020 was,” Marc encourages.
Marc Orchard is the Director of Startups with BDO in Brisbane. Marc is passionate about helping world class entrepreneurs create the exceptional companies of tomorrow.
Marc’s goal is to create the professional service firm that startups always wished they had, and position BDO as the #1 professional service firm for startups and scaleups in Australia.
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