Distributors around the globe are dealing with a stark reality that few, if any, thought possible just a few months ago. Last November, most distributors had big plans for 2020, and many were confident it would prove to be a very lucrative year. But now with COVID-19, some distributors are concerned about their futures. This new reality set in at different times around the globe.
We still don’t know how long business and life in general will be disrupted. With most distributors stuck in wait-and-see mode, it is helpful to focus on the certainties that we can rely on:
- The pandemic is not over. It likely will impact different parts of the world throughout the year.
- Uncertainty now is a certainty. We just do not know enough about the virus and the situation, and we keep learning new details and prevention and treatment strategies every day.
- Supply chains will be affected. Shortages of all types of products will continue throughout the year.
- The economy will bounce back, as it always does. Countries around the globe are investing in their economies to get them running again. We just don’t know when the economy will recover.
Distributors must take steps now to strengthen their positions and be ready to deliver. Here are four crucial steps all distributors should take.
1. Be proactive
Just a few months ago, some distributors were planning to hire more personnel because 2020 looked so bright. Now distributors need to make difficult but proactive decisions to scale back expenses. Create a new budget based on different revenue expectations, such as reductions of 20%, 30% or even 50%. Determine if hiring plans should be placed on hold. Identify which current positions can be eliminated if workdays? Decide now and take the necessary steps to make it through the rest of the year. Waiting to do this can prove costly.
2. Analyze cash flow
Distributors must prepare for the possibility of some problematic months ahead. Having positive cash flow will be crucial. Contact suppliers to ask about renegotiating the terms of your agreements and push to delay payments on supplies or equipment to adjust for cash flow if needed. Contact landlords as well to inquire about their flexibility.
Do this now. It is easier to make judicious plans with calmer heads than to scramble to come up with a plan or negotiate during a financial emergency.
On the other side of the spectrum, tighten accounts receivables. If you have not already, offer clients discounts if invoices are paid within 10 days, and enforce interest charges if invoices are not paid within 30 days.
3. Plan for the what-ifs
As the economy begins to bounce back, we may be looking at an entirely different business landscape and marketplace. You need to anticipate what-ifs and make a plan to deal with them. Consider the following what-if potentialities:
- Your company may need more staff. Will you be able to hire back former workers, or will you need to hire and train new workers to fill new positions?
- One or more of your current suppliers may not make it through the downturn. Do you have alternative suppliers you can go to?
- A competitor could go under or decide to liquidate. How can you take advantage of this situation? Are you in a position to purchase its current inventory? Are you able to take on its clients? Will you have the funds or a bank line of credit available to help you do so?
- Customers might begin calling for specific products and ask that they be delivered as quickly as possible. What will you do if your suppliers do not have these available or there are delays?
- Your suppliers may experience delays in international shipping. Do you have domestic suppliers waiting in the wings?
- There could be a sudden weakening of demand for specific products or a category of products. Can orders for those products be canceled? If they have already been delivered, can those products be returned to help protect cash flow?
- One of your largest customers could unexpectedly go into bankruptcy. Do you have a diversified customer base or enough savings to carry you until you can recruit new clients.
4. Make a strategic plan
When times are good, many distributors find they are so busy keeping up with product demand that they do not have time to take a close look at how their businesses are operating. As you prepare for business to recover or resume, use this time to look at how different departments within your company are operating. Does each department have the appropriate number of staff members?
Will your sales team need to make changes in the way it works with clients? For example, should you incorporate an online dashboard system that would help customers select the most effective products? Expect consultative selling strategies to become increasingly important as the bounce back begins.
Who are your best customers? Consider not only who generates the most revenue but also factors such as time allocation, gross margins and customer payment patterns. For instance, a large customer may purchase the most supplies, but that customer may be receiving undeserved discounts, require more time and attention than other customers, or take too long to pay bills, which increases the cost of doing business with that customer. Typically, distributors find that the 80-20 rule plays a significant role in profits. This means that 80% of your revenue comes from 20% of your customers. It may be time to eliminate those customers that simply are not profitable or worth the time and effort.
Flexibility is the name of the game right now. Distributors must expect the unexpected and realize that anything could happen.
We know the economy will recover eventually. Of course, we hope that it happens sooner rather than later. In the meantime, preparation is key. The stronger your company is moving forward, the higher the gains will be when the bounce back occurs.
Reprinted with permission from ISSA.