planning for recovery · 2020-05-22 · apr-18 jul-18 oct-18 jan-19 apr-19 jul-19 oct-19 jan-20...

Planning for recovery:How to restart your business in the wake of COVID-19

May 22, 2020

BDC – How to restart your business in the wake of COVID-19 2

Agenda

Economic update1

2 Managing the recovery

3

COVID-19: Economic updateWhat’s ahead and what it means for Canadian entrepreneurs?

Pierre Cléroux Vice President, Research and Chief Economist

4

World economic outlook


Real global GDP growth (%)

The world economy is in recession

* Potential growth is the estimated growth of output that an economy can produce at a constant inflation rate. Potential grow th depends on the capital stock, the potential labour force, the non-accelerating inflation or natural rate of unemployment, and the level of labour effic iency (OECD).

Note: GDP 2010 constant prices; f = forecast.

Source: International Monetary Fund. World Economic Outlook Update. April 2020, and Bank of Canada

3.6 3.5 3.3 3.8 3.6 2.9

-3.0

5.8

2014 2015 2016 2017 2018 2019e 2020f 2021f

Potential*:

3.25%

BDC – How to restart your business in the wake of COVID-19 6Source: Eikon.

0

2

4

6

8

10

12

14

16

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Unemployment rate, monthly

Unprecedented U.S. unemployment

14,7%April 2020


-25.9

-29.7

-9.5

19.1

4.3

-26.2

-14.8

-7.3

-30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0

Food services and accommodations

Recreation services

Services

Food/beverages for off-premises consumption

Non-durable goods

Motor vehicles and parts

Durable goods

Total

Services

Total

Durable goods

Non-durables goods

Biggest drop in durable goods% change between February 2020 and March 2020

Source: Bureau of Economic Analysis, only selected categories are shown


Real annual GDP growth (%) Quarterly growth, annualized (%)

1.6 2.2 2.9 2.3

-5.0

2016 2017 2018 2019 2020f

Potential:

2.1%

-4.8-31.7

8.9 24.1

2020-Q1 2020-Q2f 2020-Q3f 2020-Q4f

The U.S. economy is hurting

Note: f = forecast

Source: Oxford Economics, BDC calculations

9

Canadian economic outlook


-0.9

0.4

0.5

0.6

1.6

3.2

3.3

3.6

3.9

4.7

2.2

Manufacturing

Transportation and warehousing

Retail trade

Accommodation and food services

Agriculture, forestry, fishing and hunting

Arts, entertainment and recreation

Construction

Real estate and rental and leasing

Mining, quarrying, and oil and gas extraction

Wholesale trade

Total

Year-over-year change in real GDP in February 2020 (% growth)

A good start to 2020 for Canada…

Source: Statistics Canada.


1,500

1,600

1,700

1,800

1,900

2,000

2,100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

March 2020

flash estimate

Monthly real GDP ($ billions)

…Followed by the sharpest economic slowdown on record

Source: Statistics Canada

9%


Base: All qualif ied respondents (n=1061). Due to rounding, total may not equal to 100%. Survey w as conducted between April 27th and April 29th, 2020, among BDC View Pointspanel members (business owners and decision-makers).

Have you felt the impact of the coronavirus on your business so far?

Canadian businesses are profoundly affected

Negative impact

89%

No impact so far

7%

4%

Positive impact


4

5

6

7

8

9

10

11

12

13

14

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Unemployment rate (% of labour force)

Unemployment is rising in Canada

Source: Statistics Canada

13.0% in April 2020

14

The path to recovery

15

What can we learn from others?

China’s Experience


Retail Sales plummeted by

-20.5%

Industrial output went down by

Unemployment rate hit a record

-13.5% 6.2%

Economic impact of COVID-19 in ChinaHow was China’s economic performance affected in February 2020?


-15

-10

-5

0

5

10

Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20

Manufacturing is restarting, but demand is slow to recoverIndustrial production, added value, year-over-year

Source: Eikon,National Bureau of Statistics of China

-13.5%in February

-1.1%in March


Consumer spending is slow to return to pre-COVID-19 levelsCar sales and retail sales, y/y %

Sources: Thomson Reuters Economics Data

-15.8%

in March

-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20

Car sales Retail sales

-43.3%

in March


of Chinese

businesses

reopened

China is back to work

Source : Survey from China Beige Book International (CBB) , April 29

91 %

20

The recovery in Canada


420,000

440,000

460,000

480,000

500,000

520,000

540,000

560,000

580,000

GDP Q4 2019

Full recovery between Q2 2021 and Q3 2023

Source: Oxford Economics, BDC calculations

Today

The recovery will be gradual and slowQuarterly GDP chained 2012 prices, millions $


The economy is reopening in phases

Step 1Production and

small shops

Step 3Large shops

and hospitality

Step 4Public

gatherings and

social events

Step 2Schools


Public health reasons

Loss of purchasing power

Social distancing measures

Uncertainty

Consumers will remain cautious


Business investment intentions collapsed in April…

13

5

-26

October

2019January

2020

July

2019

April

2020

Base: All respondents (n=1,000). Respondents who did not know or preferred not to answer were excluded from the calculation base. Over the next 12 months, what do you expect your company’s investment spending to be?

Indicator of Investment Intentions (balance of opinion)


Impact and performance by sector, March 11–29 2020 vs. the previous 19 days (Feb. 25 to March 20, 2020)

E-commerce takes flight

Source: Absolunet.

Furniture and home decor

Appliances, electronics,

building materials and renovations

Food and restaurants

Clothing Sporting goods

%+84 %+194 %+62 %+85 %+71

Supply chain diversity and regionalization

Supply chain agility and diversity to become more important to mitigate risks and delays

The integration of regional suppliers could help SMEs

27

Opportunities for acquisitions and consolidations

The economic crisis will have a severe impact on many businesses

Business consolidation was already underway as a result of the aging population of entrepreneurs

Opportunity for acquisitions and consolidations


The recovery will be gradual and slow

E-commerce is here to stay

Supply chains will diversify and regionalize

Opportunities for acquisitions and consolidations

Four trends that will reshape the recovery in Canada

1

2

3

4

The Canadian economy

is restarting,

but the recovery will be slow

due to the severe economic

shock and the uncertainty

around COVID-19.

30

Managing the recovery

31

Alka SoodSenior Business Advisor,BDC Advisory Services

Edward FergusonSenior Business Advisor,BDC Advisory Services


More than social distancing

Health and safety

Planning and

communication

Training and

monitoring

Dealing with

potential and

confirmed cases

of COVID-19

Cleaning,

sanitation

and personal

protective

equipment

Office layoutPhysical distancing in

production areas

Physical distancing

in communal areas


5 steps to manage the recovery

Make

production

decisions

Assess risks

and develop

contigencies

Execute,

monitor

and refine

Manage

your finances

Restart your

operations

Continuous operational and cash flow planning


Make production decisions

Prioritize

offerings

Estimate

customer

demand

1


Suppliers

Assess risks and developcontigencies

Employees

Equipment and technology

Supplier/subcontractor stability

Logistics

Dependency on key

employees and skillsets

Identify backup plans

Assess suppliers and look

for alternatives

Key equipment breakdown

Lack of remote work cabapility

Prioritize health and safety

Cross-train employees to ensure you can run with a reduced staff

Risks Contingencies

2


Restart your operations

Financial

plan

Health and safety protocols

Operations

plan

3


Organize regular follow-up meetings

Execute, monitor and refine

Daily problem solving

➔ How did we do yesterday vs. plan?

➔ What do we need to do to close gaps?

➔ What do we need to do today to be

successful? (e.g., materials, logistics, etc.)

Weekly review and revision

➔ What were the big issues of the week?

➔ Do we need to update our forecast?

➔ Is our risk assessment still valid?

4


Know your working capital needs

Manage your finances

Current assets 20,000

Cash 5,000

Accounts receivable 5,000

Inventory 10,000

Current liabilities 15,000

Line of credit 12,000

Accounts payable 3,000

Working capital 5,000

5

Understand your cash flow

Week

1

Week

2….

Week

13

Opening cash balance ($) (1,000) (1,250) 5,000

Cash inflows (+) 1,350 1,800 1,900

Cash outflows (-) (1,600) (1,800) (1,900)

Financing (principal, interest) 200 200 200

Savings (investment account) - 100 100

Ending cash bank balance ($) (1,250) (1,250) 5,000


Accelerate cash conversion

Receive inventory

Close sale

Invoice

Pay suppliers

Collect cash

Number of days

Order less inventory, later

Request larger deposit

Invoice sooner

Delay payment

Ask for earlypayment

Before After

Inventory holding days 75 60

Cash collection days 60 45

Supplier payment days (35) (40)

Cash conversion days 100 65

Example


Balance working capital with growth

Cash conversion days

Average sales per day

Cash on hand plus

line of credit

Current 10% growth 20% growth

WC requirement - 65 conversion days

WC requirement - 100 conversion days

Average daily sales

Working capital requirement(amount of money needed to pay for day-to-day expenses)


Manage your cash flowWeek 1 Week 2 …. Week 13

Opening cash balance ($) (1,000) (1,250) 5,000

Cash inflows (+) 1,350 1,800 1,900

Receivables 600 950 900

Cash sales 200 800 1,000

Other (Wage subsidies, loans, etc.) 250 50 -

Cash outflows (-) (1,600) (1,800) (1,900)

Accounts payable 500 600 600

Payroll 400 400 500

Monthly operating expense burn (rent, utilities, communications) 500 500 500

Financing (principal, interest) 200 200 200

Savings (investment account) - 100 100

Increase (decrease) in cash (250) - -

Ending cash bank balance ($) (1,250) (1,250) 5,000


Productivity

Key performance measures

Q1 Q2

Installat ions Rentals Services

M J J A S O N D

Q1

Q1

Q2Q2

Times interest Debt : Equity

Target

Billable

Non-billable

On-time

Late

Target

Financial health

Revenue / labour hours

Billable time

On-time delivery

Margins

Cash flow

Debt management


3 key takeaways

3Use a dashboard to manage your activities

Health and safety is the key risk to manage

1Align your operations and financial plans2

44

BDC’s information hub for entrepreneurs

➔ Financing and advisory solutions

➔ Tools and information

bdc.ca/coronavirus

45

Visit the Government of Canada’s COVID-19 information hub

➔ Public health

➔ Government support

➔ Additional resources for businesses

canada.ca/coronavirus

46

Questionsand answers

bdc.ca1-888-INFO-BDC

BDC

BDC_ca

BDC

Planning for recoveryHow to restart yourbusiness in the wakeof COVID-19

planning for recovery · 2020-05-22 · apr-18 jul-18 oct-18 jan-19 apr-19 jul-19 oct-19 jan-20...

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