It is difficult to imagine a more brutal series of circumstances than those that have assailed the tourism and hospitality industry as a direct result of COVID-19.
Being forced to close the doors, stand staff down, face restrictions on how you can operate, and essentially be helpless as you watch your business crumble.
The full scale of the COVID-19 pandemic is not a scenario that any business could have reasonably expected. So, what are the early lessons of COVID-19? I say “early” lessons as the recent outbreaks on the eastern seaboard are a firm reminder that this is not over. Possibly we can only relax once an effective vaccine is developed and widely available.
COVID-19 has proven that there is no certainty in business and there are unknown factors or events that could affect your operations at any time. Nothing can absolutely guarantee certainty of income when matters move beyond your control. Therefore, you need to focus on what you can control.
Forecasting and budgeting are excellent business processes to engage in and can assist you in identifying your cost drivers. In turn, this can give you the knowledge of how and where you need to act to reduce costs quickly. Businesses who had good budgeting and forecasting processes in place prior to COVID-19 were able to respond faster and in a more focused manner when compared to businesses who did not.
The sudden absence of cash flow was a standout immediate effect of the shutdown.
Businesses who had good cash flow procedures in place prior to COVID-19 generally had higher cash reserves available to draw on in the first place and were able to stem the bleeding much more quickly to retain their cash when compared to businesses without good cash flows.
The ability to adapt is a key factor when dealing with a changing or uncertain environment. There are multiple examples of businesses who changed their normal mode of operations in response to COVID-19.
How effective these alternatives were for those businesses is still an unknown, as there was no doubt both hits and misses. I am certain that some businesses will not go back to their pre-COVID ‘normal ways’ because of what they have learned.
Clearly, businesses that can adapt to generate alternative sources of income or continue to operate in a different manner will have a much better chance of survival.
Staff are a major cost for most tourism and hospitality businesses.
It became apparent for some businesses that paying multiple staff their full entitlements upon termination was going to result in a major cashflow shock that was potentially unsustainable.
The lump sum payouts of annual leave and long service leave were not part of the normal business planning process. Whilst the accrued hours were recorded in the payroll system, the accounting management reports, or annual financial statements did not show a dollar value liability.
Staff entitlements are a real cost to business and need be managed from when the employee is first employed.
Every business should record the future cost in their financial accounts and most importantly, maintain cash reserves for any accrued employee entitlements that are to be paid upon termination. This transparency also allows the business owner to ensure staff take regular leave to manage the total amount of the liability for the business.
The human element became more apparent during a very stressful time for business owners and the community in general.
As a business owner there will always be people who will look to you for leadership - your staff, your customers, and your family. Be prepared to spend time on these relationships by communicating regularly.
Most importantly, do not forget to look after yourself. In the early stages of the COVID-19 shutdown I spent more time on the phone with my clients and contacts than at any other time in my career and most of this time was spent on emotional and not technical support.
How can RSM help?
If you have any questions regarding COVID-19 impacts on the tourism and hospitality industry or your business in general, please get in contact with your local RSM adviser.