With the rapid onslaught of the coronavirus already disrupting business operations in the U.S., there are three ways you can face the future: panic, do nothing, or plan. As we work with business owners through these tough times, we know the best way to do this is to plan, making the situation under your control as much as possible.
By now you have probably read all the communication from your local, state and federal governments on how to prepare for the actual virus itself, and hopefully you are moving forward with those preparations. But what should you, as a business owner or responsible manager, do to prepare your business?
Assess the Impact on Your Business
The first step is to assess how the changing environment might affect your business. How will the virus affect the revenue and cash flow of your business? Not all businesses will see a revenue decline, and for others, the decline could be catastrophic. For some, it won’t be a question of getting or keeping the business, but labor shortages that might make it impossible to deliver your product or service. Consider these possibilities:
- Sudden Drop in Demand – Many service businesses including restaurants, fitness and health clubs, and other services are already seeing a sharp drop in revenue as customers stay home. It will be made worse as authorities force businesses to close or operate for fewer hours, or as contracts from state agencies are stopped. If you are in the construction industry or a manufacturer, most likely you have contracts that will continue through the next months, so this might not be an immediate issue, or you might find yourself unable to perform to your contractual obligations through limitations in your workforce.
- Sudden Increase in Demand – Some businesses are seeing huge increases in demand like supermarkets and resellers of products needed at home, and of course, suppliers of medical products. This could hit manufacturers as well if their competitors can’t deliver due to labor shortage or supply chain issues. Here, you’ll want to consider how to keep your existing customers happy, so they stay with you after the virus passes.
- Labor Shortage – You will probably be affected by a drop in labor as workers are forced to stay home. The possibility also exists one of your employees is infected and your entire staff is required to be quarantined. To prevent this, you must be sure your staff is comfortable with staying home when they feel ill. This could be an issue if your company has a very authoritative management style and your employees are afraid to be honest with you. You might want to coach your employees to practice social distancing while they are not at work. Additionally, your workers might be afraid to come back to work for fear of getting the virus.
- Supply Chain – If you are a manufacturer, you’ll need to assess the supply of all of your component parts. Some companies are already experiencing shortages of critical parts. If you resell products from other suppliers, you will likely have similar problems, requiring you to be resourceful
- Long Term Impact – If the situation continues for many months, the long term impact will be hard to predict – but in this situation, the possibility of this lasting a long time is high.
Create an Emergency Disaster Plan
Once you have a plan, if you are facing a sudden drop in demand and a steep revenue decline, it’s time to plan for action NOW. The immediate impact of actions to mitigate the spread of the virus will probably last 6-12 weeks or longer, and your first task is to preserve cash to make it through the lean times. Make three different plans for a 10%, 25%, and 50% or more reduction in business – or “slowdown”, “significant drop” and “disaster”. If you see your revenue decline hit one of those targets, enact the plan accordingly to that category. Consider these steps in each of the plans:
- Identify Non-Essential Expenses – Depending on the size and complexity of your business, access to reliable financial data about your business is critical. You will need to quickly identify and stop all non-essential expenses to preserve cash as soon as possible.
- Defer any discretionary capital expenditures until the acute illnesses caused by the virus are in decline. Some projects are such that sustaining a delay will have a significant negative cost impact. On the other hand, with the federal funds rate now at zero, banks will be able to lend at historically low rates, so it may be a good time for capex. Projects with high net present value (strong justification) should be pursued, but projects with borderline justification should be delayed.
- Delay payments to vendors where possible and ask key suppliers for help – they might extend additional credit or give you more time to pay.
- Talk to your Bank – When the entire economy tanks, they are in trouble too. Be assured, they are working with the government to minimize the impact on their bottom line and they are fully prepared to listen to your needs. They might delay installments, cancel interest payments or provide cheap bridging loans.
- If you run a non-profit, reach out to all donors and volunteers and ask for additional assistance to get your organization through – and be specific in the ask.
- Essential Expenses – Decide which essential expenses need to be cut in order of importance and cut them in that order when you have to.
- Employees – Plan for movement of essential employees to virtual, at-home work assignments or part time. If layoffs are necessary, stack rank your employees based on their criticality to maintaining operations.
- Contact your suppliers – To understand the impact on your business, it is essential to know where your suppliers stand. Have they stopped or decreased production or has demand for their products increased to the extent that you might face shortages? Consider logistical challenges as distributing products is typically not a stay-at-home job.
- Contact your customers – As much as you need to know the status of your suppliers, your customers have the need to understand your situation. In times of crisis, customer-centric organizations make a difference and will be remembered.
- Reassure Employees – Be open and communicate your plans with your employees. They dread nothing more than uncertainty.
- Avoid Travel – Avoid travel if possible. This is the time of year when there are lots of industry meetings but getting on a plane or staying in a hotel right now is a risky proposition. Look for opportunities to meet suppliers and customers virtually. Get out front in communicating with your customers to reassure them of the steps you are taking to keep them whole through this crisis.
- Use Time to Work On Your Business – Work on the gaps in your business during the slowdown so you can come out stronger when it’s over.
- Pivot to New Realities – Think about any way your business can pivot to take advantage of the new realities. There will be fundamental changes in the way we do business moving forward, and only the agile will capitalize on them.
- Get Advice and Help – Discuss and develop these plans with outside help – your business coach, peer advisory board or other business mentors should help you identify areas to focus on – especially trusted advisors already familiar with your business.
Take Appropriate Action
Now that you have a plan, you must commit to taking action. Any additional delays will cause your cash to run out sooner, putting the long term health of your business in jeopardy. Hard decisions may be necessary to save your business.
Finally, discuss the potential impacts with your key advisors – your business coach, accountant, or fellow business owners. By having the discussion, they will give you essential ideas you might not have considered. By sharing their expertise and unique perspectives with each other, they simply increase their chances of success.
The Treasury Department and the Internal Revenue Service are providing special tax filing and payment relief to individuals and businesses in response to the COVID-19 Outbreak. The filing deadline for tax returns has been extended from April 15 to July 15, 2020. All details and updates are available here: https://www.irs.gov/newsroom/payment-deadline-extended-to-july-15-2020.
Actions We Are Taking
Here in Ohio, we are under a “stay-at-home order.” We are an essential business but have made changes to our communication and hours. Due to the change in the filing and paying of 2019 tax returns, if we don’t finish before 4/15 clients will not have to contact us, nor do we need to get any more information from them. We are continuing to work and hope to finish by July 15th. We ask that our clients provide us with their information electronically through our portals. We are also mailing returns for those that cannot receive their return electronically.
If there’s any way we can help your business during these uncertain times, Orcutt & Co is here for you. Please contact us today with any questions. Be well!