How to manage a business in a crisis

There is no point in wringing our hands and telling everyone ‘we are doomed’ – we must try to handle this economic crisis in a collaborative and systematic way.

I do think that our governments are doing a good and decisive job to support business owners and their staff. As the Financial Times wrote last Saturday: ‘No government has ever intervened in such a way, even in wartime.’

I’ve had more than my fair share of business drama. My former financial publishing company in London sold roughly £100,000 in advertising a week to investment banks etc, and when the dot-com bubble popped in 2000, that advertising stopped dead immediately. Within a week our £12 million annual turnover business lost £5 million. Years later, I bought a bust recycling company, which due to past deeds couldn’t renew its environmental permits and its site was about to be closed. The online education company I co-owned nearly lost the certification to teach lucrative online personnel courses. These crises were handled carefully and resolved.

Every business has an almost fatal event, but before now never in my time have almost all businesses had a crisis at once: 1974, 1981, 1991 and 2008 were the major recessions and 1929-33 the Great Depression, all took years to recover from. These recessions were marked by the economy declining for more than two quarters, a dramatic spike in unemployment, and a collapse in both stock markets and property prices.

Regardless of the size of your business, the tenets of how owners should react are the same.

My standard course of action in a severe downturn is as follows: firstly, look at every single line of costs on the profit and loss account. This is about survival – cut first, reinstate later. Subscriptions, unnecessary travel, flowers at the reception, all must go. Take your biggest procurement items and get companies to tender, make sure you are paying on 60 days rather than 30. Yes, you can show loyalty to favoured suppliers but make sure they are benchmarked.

Business rates are being waived for many smaller and medium-sized businesses at the moment – fantastic. Quite a few companies have already stopped their direct debits while they wait to see how the council is going to handle the rates holiday. After all, in a crisis, cash is king.

What about rent? Probably your second biggest cost. An owner of a business told me that a local landlord of many of the properties in the Fort William High Street has been visiting his tenants and is offering a rent holiday. Isn’t that great? It’s a real example of people working together for the common good.

At the Highland Bookshop and other businesses that I’m involved in, we have asked the landlords if they would share the pain and grant us a three-month rent holiday. Their response has been positive.

This brings me to staff, almost certainly your biggest cost but also the future of the company. You don’t want to let the expertise go. Leadership is key here. If you are the boss you must take the biggest hit, so go to zero pay if you have the savings to afford it, or 50 per cent at the least. Everyone must know that ‘we are all in this together’. Impose a 33 per cent pay cut on managers, while staff should take a 20 per cent cut. Obviously you cannot and would not want to cut those on basic pay: they need every penny of that to survive.

When I have carried out this horrid cost-cutting in the past, I have made it clear that should business recover within 18 months, I would pay a bonus to make up their loss of income. The Westminster government’s announcement of income support of 80 per cent will mean survival for many businesses that were certain to fail during the COVID-19 crisis.

If you carry out this exercise, you may well cut your cost base by 30-40 per cent without damaging your business in the long term.

Next, refocus your business. Where can money be made using your expertise during these troubled times? At my publishing company, we moved our salespeople to selling subscriptions rather than advertising, and we ended up with far better quality of earnings as a result. I read that car part companies are manufacturing ventilators, and you can see it locally – restaurants are now offering takeaways and gin companies are manufacturing sanitisers.

If you don’t have enough work for your staff, don’t just tell them to go sit it out at home. Ask them to suggest how they can help others, do deliveries for older people, chop logs, do a litter sweep in their local community. I’ll bet they are surprised how satisfying it is to give.

We are in for a depression quite possibly. Cut costs dramatically, refocus your business and protect your workforce as well as you can.