The period December 2010 to date has seen a significant number of natural disasters befall our beloved blue marble: flooding on the east coast of Australia, cyclones in north and fires in the west; tornadoes in USA, earthquakes in NZ with the same and tsunamis in Japan, added to by the threat of nuclear disaster, to mention a few. If comic book writers have any prophetic ability, I’m expecting Godzilla to emerge from the murky depths any time now.
Throughout these events there has been a serious loss of life, livelihood and property that will affect some people for many years to come. The potential reality for some is that they may never actually recover from the losses, particularly where the loss of a loved one is experienced.
This blog intends to focus upon the effects on businesses as a result of the flooding in South East Queensland, which eventually saw three quarters of the state declared a disaster area. The Chamber of Commerce & Industry Queensland (CCIQ) undertook a study of over 550 businesses, most of whom where based in the Brisbane area, relating to their experiences in late January 2011.
A brief summary of its findings is as follows:
- One in five businesses in Queensland were closed as a result of partial or full inundation, loss of power or cut off from their business
- Most business were forced to close for about eight days and took on average thirty one days to return to normal trading
- During the flood, almost half of survey respondents experience lost earnings of between $10,000 and $50,000 with one in twenty losing over $1,000,000
- Businesses directly affected by the floods on average expect to lose 11% of their annual turnover; in dollar terms almost half of survey respondents expect to lose $20,000 to $100,000 with one in ten expecting to lose over $1,000,000
- One in five business indicated that the flooding would have a major to critical impact upon their businesses
- Most business were struggling with their insurers
- Many more business were indirectly affected by the floods through affected customers, suppliers, employee inability to attend work or through the downturn in tourism appeal
The study goes on in much more detail and finishes with a collection of quotes from respondents, epitomised in the following example:
‘Destroyed cash flow, harmed suppliers ability to service and maintain equipment, could lead to business closure when banks foreclose due to missed payments, will have to lay off staff in the next week.’
Assuming that the impact to your business from the floods (or any other disaster) is none to moderate ie still viable at least in the short term, here are a few considerations as the rebuilding effort gets underway:
- Demand for products/services and supply conditions have likely been altered. What is the revised breakeven point for sales?
- What sort of impact would a lower demand for products/services have on your revenue and earnings?
- Is a revision of staffing levels required to cater for this? Redundancies and terminations will have an effect on your cash flow.
- If debtors take extra time to settle accounts, how is cash flow impacted?
- The business may at risk of breaching lender covenants. Are you able to be proactive with regard to how you will respond to lender concerns?
- Are your present finance arrangements affected? How would your lender react to a request for increased finance?
- Which capital expansion plans are able to be put on hold and is there any potential to lower overhead costs in an effort to preserve cash?
- Can nonessential assets be sold to provide working capital or reduce debt?
- Do you need further external assistance for the business to remain afloat? Is a merger or strategic partnership an option? If so, who would you approach?
The answers to these questions provide business owners with the ability to act timely in response to change, allowing them to make prudent decisions very quickly. It is those businesses that are able to adapt to change that will keep their heads above the floodwaters and prosper in the future.
Written by Matt Scott
Franchising Division Manager
(For further information, you may like to refer to a previous blog where I discussed a number of issues relating to disaster recovery for disaster affected businesses)
