4 June 2021|Crisis Management, Latest Posts
Ercan Demiralay, Partner at Wellers, explains the shift in mindset required by founders to pave the way through financial uncertainty.
During times of financial uncertainty, it may seem strange to talk about business strategy. Instead, you may be thinking about battening down the hatches and hoping to weather the storm, and no one would hold that against you. But equally, it can also present an opportunity to pivot your business and realise new avenues to generate revenue.
What is strategic direction?
Before we talk about how you can pivot your business to respond to the pandemic and ensuing economic unpredictability, let’s first understand what we mean by strategic direction. Simply put, a strategic direction is a plan that is implemented to help an organisation progress towards its vision and fulfil its goals. Setting a clear strategic direction means business owners and management can clearly communicate the importance of employees work and how their contribution helps achieve the company’s overarching goals.
Changing strategic direction
You most likely set out your strategic direction in your business plan. The early years of owning a business are dominated by turning an idea into a commercially viable entity which will be reflected in the original document. However, when it comes to pivoting your business, the original strategic direction will not necessarily be relevant anymore and so it could be time to start again.
When changing your strategic direction, ask yourself the following questions:
· What is the vision and mission of the business?
· What level of sales do you want to achieve?
· How will you implement this?
If you are pivoting due to the pandemic, or another extenuating circumstance, it may be that your overarching vision and mission remains the same, but how you get there is different. For example, a restaurant owner that prides themselves on delivering quality food made with local produce could pivot their business to create at home menu kits that deliver prepped meals directly to customer’s doors for them to create a restaurant dining experience at home. Here, the mission of the business is the same, but the method has shifted.
To facilitate pivoting a business, you may have to invest in new equipment or processes. Although this outlay of finance may seem counterproductive initially, if it means your business will survive in the long term then it is certainly worth it.
Stay on top of your numbers
When pivoting a business and trying something new, it is especially important that you keep an eye on your numbers. As you switch operations, tempo, or focus, it’s expected that your numbers will change, but you shouldn’t use that as an excuse not to be aware of your cash flow. By regularly checking your margins you can reduce costs or alter prices when the time calls for it.
You will also have the opportunity to forward plan and predict your financial standing in six months or even a years-time. You can plan for political changes and economic developments; the latter is slightly harder during a pandemic although not impossible with the help of a financial advisor or accountant. Paramount to this is reviewing your cash position via the working capital formula to ensure your business won’t run out of money.
Careful financial management means not just understanding what your cash flowlooks like today, but also what it will look like in six months-time. Working capital and profitability are key financial metrics that must be accessible via your management accounts. It’s also important to remember that a business can survive without making a profit, but it won’t make it through a prolonged period of negative working capital.
To learn more about strategic direction, visit the Wellers website for information and personalised advice.