Business Assessment in a Time of Crisis: Don’t let COVID 19 Sink the Business

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Last week’s article dealt with KPIs (Key Performance Indicator) for financial management in a time of crisis. It’s a way of looking at major factors in business on a regular basis. Is the ship is taking on water? Can the pumps handle it? Or is the firm heading out into deep waters, making a bad situation worse? It’s now possible to apply for Enterprise Ireland grants to assist in financial planning but in the short to medium term businesses need to concentrate on how to eliminate or reduce losses and retain cash.

10 KPIs to assist in this task on a weekly basis

  1. Fuel as a percentage of turnover (maximise the current cost advantage).
  2. Drivers Wages/Incentives as a percentage of turnover; (here again maximise all State support in this regard and also bring all employees into plan to safeguard their jobs in this crisis).
  3. Tyres/Maintenance/Depreciation/Interest as a percentage of turnover; If there is a large percentage of the vehicle fleet is idle this needs to be addressed in a practical way, by lowering maintenance and tyre costs, disposing of assets if a reasonable return is there.
  4. Overheads as a percentage of turnover; as turnover decreases it’s imperative that overheads are reduced correspondingly, otherwise high overheads as a percentage of turnover will eat into profit.
  5. Debtors Days – if controlling debtors as advised, monitoring the results of customers so that potential bad debts are avoided and assisting the finance department in debt collection, there is no reason that debtor days should increase.
  6. Creditors Days – If these are being extended because the business is under cash pressure, lack of supply or poor rates from suppliers can be a fundamental game changer in operating the business.
  7. Gross Profit as a percentage of turnover – If in this crisis and can maintain or improve gross profit margin, then maintaining overall profitability is achievable.
  8. Net Margin as a percentage of turnover –  If the business cannot or will not cut direct costs in line with the reduction in turnover then the net profit margin will suffer. As previously stated it is the net margin that is crucial for survival.
  9. Earnings before Interest, Depreciation and Amortisation (EBIDA) – This is the key figure that banks look at to see is the business liquid or has free cash to service its leases and loan obligations. With financial institutions allowing mortgage and lease payment breaks, it should now result in the EBIDA figure for the business in 2020 being positive. Remember banks will look for repayment capacity in the future. This is just a time out to get a breather. Look at the strategy and be able to carry on and win
  10. Top 5 customer’s percentage of turnover and percentage of profitability. Perhaps this crisis has not affected some customers but has others; there is a need to know on a weekly basis details on the top five customers (which normally make up 50% to 75% of turnover) and monitor any change in profitability with these main clients.

*Donal Dempsey is on the panel of consultants working with Enterprise Ireland dealing with the formation of COVID-19 Financial Plans for businesses. Enterprise Ireland grant aid businesses with advisory experts in individual industries to assist businesses in this crisis, without a cost to these businesses.