Whether it was the dot.com bubble, the 2008 global financial crisis or even the disruption to the travel industry caused by an Icelandic volcano, ECI has learned that no two crises are ever the same. The long-term impact of these events was huge, and there is no doubt that the current coronavirus pandemic will have long lasting implications for our economy, our society and our world view.
However, as long-term investors we invest through cycles and when we say we partner with management teams to build successful businesses, that means we work with them to build resilient businesses that can ride out a storm. Managing your business through this is not easy, but our experience has shown that getting these five things right will make a big difference.
1. Get in control
In an effort to slow the spread of the virus, governments around the world have effectively pushed their economies into an induced hibernation. In this situation, cash becomes king as revenues collapse and business dries up. Companies must act quickly to control costs and shore up their liquidity during an indeterminate lockdown. One of the biggest challenges is to transform your team’s mindset from focusing on your P&L to your balance sheet: growing companies are relentlessly focused on EBITDA and profitability.
Now, at least in the short term, cash is the priority. Make sure your top team understand this and have a very clear structure to manage the situation, communicate quickly and make fast decisions. Re-focus your reporting KPIs towards liquidity measures such as net working capital and ensure you have a rolling 13-week cash flow forecast. It is also critical to understand when things are starting to turn a corner, so agree your best indicators of returning demand, noting that they may not be the same now as in business as usual. And increase the frequency of management reporting, from monthly to weekly or even daily: in a fast-moving situation you need up-to-date information to act on. Be pragmatic about this; when things are changing so quickly, getting good information today may be better than waiting for perfect information.
2. Focus on your people
Despite the urgent focus on your balance sheet, don’t forget that your biggest asset is your people and talent. Your employees will remember how you treated them during the crisis, and what you did to keep them healthy and productive. That’s not to say you won’t have to make some tough decisions, but being open and honest will help in the long-term. Does your leadership team know how your staff are feeling? What are you doing to keep them happy and engaged? At ECI, and across our portfolio, we are sharing and completing a wellbeing survey to try and answer those questions and understand what areas people might need help with. We know that managing remotely is a very different proposition, so we’ve collated our top five tips for supporting employees that are working from home.
It can also be easy at times like this to make hasty, short-term reactions such as laying off staff or ditching your graduate schemes. Cutting too deep risks weakening your platform’s ability to spring back when the crisis is over. Also, don’t forget your long-term talent strategy, otherwise you may end up with a talent gap a few years down the line. Lewis Bantin recently spoke to Unquote about how ECI are thinking long-term when it comes to talent, stating “”If we want to find the right people to put the business on the front foot for the future, we have to keep these efforts going.”
When we come out of this crisis on the other side, the companies that worked hard to protect their staff and treat them well will be best placed to attract the top talent.
3. Leverage your relationships
A few weeks ago and just as the UK was going into lockdown, ECI gathered the CFOs of its portfolio companies for a webinar with experts, including operational improvement consultants, tax specialists and public affairs experts. Tapping into a network of experts can help provide actionable advice on how to shore up your liquidity, navigate your relationship with lenders, and access the dizzying array of initiatives launched by the government, from tax holidays to grants and low-cost loans.
For example, speak to debt advisors and restructuring practitioners to get feedback from the market: what banks are prepared to roll over interest payments? Are debt funds being more flexible on covenants? If you are backed by an investor, their relationships with lenders will also be critical. Experience shows that debt funds and banks will prioritise helping borrowers based on their relationship with the sponsor, often forged over multiple years, cycles, and previous crises.
Remember that lenders were blamed for causing the last financial crash; this time round they will be eager to be part of the solution.
4. Tap into government support
Which government initiative should you tap into? It can be hard to know for sure when so many have been launched in such a short period of time, with changing guidelines, and significant bureaucratic difficulty. Here is a good government guide to what is available, from the CBILS and CLBILS corporate loan schemes, to the Job Retention Scheme, to the three-month VAT payment holiday.
The practical advice we’ve taken from our network of experts would be to treat any government scheme as an upside until it is secured. There may be a delay in getting the support or you may be ineligible, so make sure you have a contingency plan in place. Furthermore make sure you dedicate resource for getting in touch with Government departments. You may be on hold for a long time on the HMRC hotline, and need all the relevant information when you get through such as your UTR number and details of the amount of tax you owe. Many investors such as ECI have retained public policy and tax experts during the pandemic, so make sure they connect you to get the best advice for your situation.
5. Motivate yourself with a purpose
Nobel prize-winning economist Milton Freidman once said the only social objective of any company should be to boost profits. Long before COVID-19 that theory has been increasingly challenged, and it has been inspiring to see during the crisis that the majority of companies have been driven by a desire to ‘do the right thing.’ Not only does this make decision-making from the top much simpler, with leadership teams sharing a sense of purpose, rooted in your strategy and values, but it also helps retain customers, suppliers and employees, helping to ensure you have a strong business once the crisis has passed.
There are numerous examples of this across the ECI portfolio: IT Lab (now Content+Cloud) for instance is part of a U.K. consortium working to provide 10,000 ventilators for NHS hospitals, while until September CPOMS is offering its student safeguarding tools for free to schools without the digital systems in place to help them meet their legal obligations during this stressful and uncertain period.
After the pandemic passes, this sense of purpose and how it drove your actions will be part of your long-term identity.