As your business responds to the economic threats posed by the coronavirus, the steps you take in round one are crucial.

By Amy Roman, CPA, CGMA, CM&AA

 

The daily challenges of running and growing a business take the full focus of business owners. The hardest thing you’ve had to face most recently has centered around finding qualified help rather than how to manage employees remotely or put them on furlough.

I hear you. The forced changes to, and even temporary closure of, your business could well be the worst pill you’ve ever had to swallow as an entrepreneur.  But the best way to minimize damage is to face the hard realities head on. You need to reduce your exposure quickly. While this may be challenging to consider today, this crisis could actually push you toward healthy business decisions you should have been planning for all along.

If you had a contingency plan in place prior to the coronavirus, high marks for you. You’re among the business owners best positioned to come through this intact. Continue to work your plan and read on for additional tips.

Use the following checklist to institute changes and preserve your business:

  1. Cash is king. While it’s important all the time, it’s imperative now.
  • Prepare a basic cash scenario over a 3-month horizon to evaluate best and worst case outcomes. We start each of our clients with a 13-week cash flow analysis tool. CEFO clients live by this. With a minimal amount of training, you will be able to see your cash position at a glance, make adjustments and course correct as needed Please contact us for a complimentary, virtual training session to get your 13-week cash flow forecast tool set-up and customized for your business. While our offer is valid at any time, it is particularly important right now and we stand ready to help business owners in our community.
  • Immediately get on top of collecting receivables. This is always a best practice, however it could be a do-or-die strategy now. At the same time, remember that many businesses and individuals are sharing your pain. Review your accounts and be willing to extend grace periods and negotiate terms. Consider being pro-active and offering your clients a discount, using your 13-week cash flow as your guide. Pay it forward. Investing in the mutual success of your loyal customers builds strong connections and will benefit you in the long run.
  • Pick up the phone and begin an honest conversation with vendors, bankers, landlords and service providers. Negotiate a delay in payments or change in payment plans. Many lenders have already communicated these options and stand ready to work with you. They understand that cash conservation needs to be your first priority.
  • Temporarily change appropriate large vendor payments from check to credit card.
  • Delay your 2019 US federal tax payment. The IRS has extended filing six months and will forgive interest and penalties allowing you to “finance” your taxes due.
  • Suspend shareholder distribution payments.
  • Implement a temporary 10% or 20% employee pay reduction and as the owner, communicate you have led the way by cutting your compensation first.
  • Pursue grant or loan options from the SBA. New low-interest federal disaster loans for working capital were put in place last week specifically for small businesses and private nonprofits suffering substantial economic injury as a result of the coronavirus. Here is a link to review eligibility requirements and apply.
  1. You need a lifeboat strategy. Although the immediate crisis may recede in a few weeks to months the effects will be felt for much longer. Many of your assumptions about customers, sales cycles and revenue are no longer true. In some cases, you should even evaluate your business model.
  • Make an honest assessment of the minimal things you need to keep your company alive and what you need to leave behind.
  • Segregate expenses between direct (expenses necessary to produce goods or services) and indirect (general expenses necessary to operate your business). Attack the indirect expenses to significantly reduce or eliminate costs. Be sure to eliminate monthly costs for phone lines, data storage, software subscriptions and virtual planning tools for those who have left in good times or through necessary layoffs. If revenue starts to flow the day you reopen your doors, than a freeze on variable spending, such as hiring, staffing, marketing and travel, may do the trick.
  • Eliminate perks and programs that drain cash.
  • Evaluate your product and market fit for the ‘new normal,’ even though you are hoping that it is temporary. Can you change your delivery model to online? Can you provide consulting services via video? Do you need new sales messaging to address immediate points of pain that may not have existed last month?
  • Cut prices. We are all aware of customers that want to do business with us, but have not been in a position to purchase. When you are trying to keep afloat, offering significant discounts on products or services may be just the ticket. Use your 13-week cash flow analysis as a guide to understand how far you can go and still meet minimal goals.
  • Develop a contingency plan early to manage the worst-case cash scenario. For service businesses, the reality is that revenue may still come in the early days of the crisis, but slow to a trickle as weeks and months unfold. You will be able to see this in your 13-week cash flow. Unfortunately, it means that will probably need to stay in the lifeboat longer.

 

  1. Address staffing levels. Employees are your biggest expense; cutting them is often the most painful challenge. But if you cannot avoid layoffs, failing to act quickly could be fatal. Don’t leave it for last.
  • Plan, communicate and act with compassion. Be completely transparent. Your employees are scared, too. Your leadership skills and emotional intelligence will be under a spotlight and you need to get this right. You may also benefit from counseling on how to handle any layoffs from a legal perspective.
  • Consider job-share options for hourly employees if that works for your business. By reducing hours from full time to two days a week, employees may be eligible to collect several days of unemployment each week as well. This strategy could minimize their financial pain and keep them engaged until you are able to bring them back full time.
  • When considering whom to cut, keep your team and culture front and center. The reality for many businesses is that not all hires are created equal. One potential benefit of a layoff is the opportunity for a do-over on a hire that is a poor fit for your team, or someone who does not share the core beliefs that are central to your culture.
  • Reserve enough cash to offer two-weeks compensation to anyone you need to let go, if at all possible. This is another reason to act early.

 

  1. Preserve your culture. You worked hard during the good times to instill core values and behaviors as a foundation for your business. Lean on your culture now to guide you through the challenges.
  • Over-communicate and be consistent, using the core language of your culture as you consider and share important decisions.
  • Double down on teambuilding. Create opportunities to connect, share feedback and relieve stress. If you’ve made layoffs, don’t forget that the remaining people are grieving, could feel guilty and may be concerned that they are next.
  • Consider the personalities of each employee. Each will benefit from personal check-ins and may need direct reassurance and guidance from you.
  • Create a clear charter for moving forward.

At this early stage in the crisis, the only thing that we know for sure is that there are more surprises ahead. You may need to consider this list more than once as you navigate through new territory. Remember that you are not alone. But you are the one person who can stand up and fight for the survival of your business. And if you need assistance or have questions, please reach out to the team at CEFO for a free consult.