Fight or flight

If you're a soaring eagle, untouchable and majestic, surveying all that slouches beneath, you probably don't need to read this. No financial crisis impacts you, no pandemic negatively affects your operations, and prosperity flows like a mighty river below you.

For the rest of us, post-pandemic financial challenges look significantly different. Because I live and work here, my focus is on the BC market. Sure, there are some heavy-hitters here, with several new tech companies valued at over a billion dollars each emerging just in the last year. For mid-size companies, though, with gross revenues between $50 million and less than a billion, quite a few sectors are feeling the pinch. Employment levels in more than half of this province's industries are still below pre-pandemic levels. Coupled with sustained inflation that erodes business confidence, business leaders have had to consider some fairly important issues.

A recent KPMG in Canada survey asked the leaders of Canadian mid-sized business to identify their single most-pressing concern. Respondents ranked inflation, higher interest rates, pandemic fatigue and the risk of future restrictions at the top, followed closely by tight labour markets, supply chain challenges, and rising energy prices. Here's a snapshot of results from that survey specific to BC:

• 71 per cent say they would face considerable pressure on their business as a result of a one per cent increase in the Prime interest rate.
• 43 per cent believe the pandemic has forced them to restructure and reorganize operations due to higher costs and supply chain challenges
• 91 per cent had Omicron-related employee absenteeism
• 86 per cent were impacted with reduced consumer demand
• 90 per cent needed to adopt new digital technologies.

Looking at those numbers, we have to be honest with ourselves: faced with these multiple pain points, most mid-sized businesses aren't eagles. They're more like ostriches with their heads in the sand—tantamount to the mistaken belief that when you finally look up and around, things will have blown over. In fact, only 32 per cent of business leaders in BC agree that their company is open or transparent enough to talk about its financial challenges to external parties like turnaround specialists.

Regardless, whatever threats may wax and wane, the "Big Two" are here to stay. First, inflation: it's real, not transient. Second, interest rates: they're ratcheting up quickly, not backing down—and not just here in Canada. From my perspective, at this point it's only a matter of time before the next recession.

But here's what I often say to my clients: You made it through the pandemic, and now, with pandemic-specific government aid ending, one less life support is available. Tough decisions and uncomfortable discussions can only be avoided for so long. When are you going to get in front of your stakeholders and show them that you have an actual plan that addresses our new reality?

Admitting you're headed for trouble can be the hardest part. If you can answer "yes" to two or more of these questions, guess what? You might be in "ostrich mode":

1. Did you use CERB, CERS or other government supports during the pandemic?
2. Are you in breach (or close to it) of any of your banking covenants?
   
3. Did you increase your debt during the pandemic?
   
4. Check your voicemails—are your bank or your suppliers trying to reach you?
   
5. Were you unprepared for the current supply chain crisis in such a way that you've struggled just to get your product to market?
   
6. Are you having problems finding and retaining the required talent to keep your business going?

Ok, sure, the government may have taken a shotgun approach to helping businesses, but in doing so it has also artificially propped up many "zombie" companies that systemic industry issues may have forced into failure naturally. Subsidies and protections have now been stripped away with no assurances that more will be available in the future.

When faced with threats, ostriches can reach speeds up to 70 kph. Whether you are burying your head in the sand or simply trying to outrun macroeconomic trends, I encourage you to be proactive instead.

Like the phoenix, rising anew from the ashes of its former self. Be a phoenix.

What does this mean in practice? It means finding and deploying tools and strategies that will help you pivot, profit, and thrive. One of the approaches I recommend all the time is the Rapid Performance Improvement (RPI) diagnostic, which enables a quick independent and objective view of your business based on our extensive turnaround experience and data-driven insights. An RPI will help you quickly develop your options as you hear directly from specialists, their insights played back to you. In short, an RPI allows you to exercise agency in your company's future instead of having to roll with what's happening to you. RPIs often involve exploring four potential scenarios:

1. Transaction (sell all or part of the business)
2. Operational improvements (fix the business)
3. Wind down (close down parts or all of the business)
4. Reinvent (enter "phoenix mode")

In a business context, eagles are fortunate, and rare. Ostriches are unfortunate, and unfortunately common. But phoenixes are somewhere in the middle, and they're building a post-pandemic recovery blueprint to maximize EBITDA and cash-generating capabilities. They're also proactively talking to and managing key stakeholders. We need more phoenixes.

Which type of bird are you? Which one do you want to be? Not sure? Give me a call.