No one has escaped the disruptive nature of COVID-19.  Employees are experiencing lost wages, businesses are experiencing lost revenue, even retirees are experiencing losses to the retirement accounts they’ve worked so hard to build up over their careers.  What will distinguish us is how we respond to the disruption.  As business owners, we are facing a daily feat of intelligently navigating the immediate risks the COVID-19 crisis has created.  As important as this is, we also need to focus on preparing for a post-crisis world that might look drastically different from the world as we currently know it.

Navigating the Current Risks

Business owners must make difficult decisions to ensure the survival of their companies.  Be informed! Take advantage of information available through the web and check back often.  We are in an environment that is constantly changing.  Don’t make decisions today with information from last week.  It will be outdated. Click here for a pgage with resources to help you navigate the current climate.

Current circumstances dictate maximizing liquidity.  As the old adage says, “cash is king”.  Cash flow management and projections are critical.  All business owners should consider the following:

  • Develop a cash flow model that goes out three to six months. Stress test it for additional reductions in revenues.  Monitor it and make adjustments as warranted.
  • Consider drawing on available credit lines and seek to acquire additional credit for a safety net.
    • Evaluate whether the new SBA loans would be beneficial to your company. Would you meet the criteria for eligibility of forgiveness or what you would need to do to create eligibility?
  • Expect the collection of accounts receivable to slow down.
  • Pay attention to your accounts receivable – make phone calls to ask for payment. Customers with slow or late payments may indicate financial trouble and your credit terms for them may need to be re-evaluated.
  • Check with customers before large orders ship. Confirm they still want the shipment and that they have the ability to pay for it.
  • Inventory is cash sitting on your shelf. Are there inventory items that you do not need?  Can those items be returned?  Are there slow moving items that should be discounted to promote conversion to cash?
  • Can you provide incentives to customers to promote sales and collections?
  • Identify your most profitable customers and look at stepping away from those that are less profitable.
  • Watch your profit margins; do you have low profit lines that you should discontinue?
  • Identify your revenue producing activities/employees. Where can you make cuts? Make those cuts as soon as possible.
  • Provide excellent customer service, your customers are your key to survival and success.
  • Reach out to lenders and vendors to negotiate short-term relief. Be proactive; get in touch with them before you run into cash issues.  Let them know where you are at and what you are expecting, then you can discuss available options should you need them.  Your lenders have a vested interest in your success.
  • Talk to your landlord, ask for a temporary reduction in rent or a deferral. Your landlord has a vested interest in your success.
  • Review required estimated tax payment amounts and due dates. The due date for filing and paying 2019 taxes has been extended to July 15.  First quarter federal estimates are also due July 15.  It is a state-by-state decision on whether they will follow the federal due date.  Oregon is not, while California is.  Evaluate each state separately.
    • Consider using the annualizing option for calculating required payment amounts. 2020 profits are unpredictable and paying protective estimates may tie up cash that could be used for operations.

In addition to actively managing cash flows, successful business owners will understand the following:

  • What relief options are available in the new Coronavirus Aid, Relief, and Economic Security Act (CARES Act) beyond the SBA loan program?
  • Some provisions in the CARES Act are mutually exclusive (Payroll Protection Program and Employee Retention Credit). Which provision should you pursue?
  • Which expanded SBA loan program makes the most sense for your business?
    • Do you qualify for loan forgiveness?
  • How will the Families First Coronavirus Response Act will affect your business and your employees?
  • It is important to reach out to vendors to confirm supply chain continuity and discuss payment terms; be cautious when asked for deposits without committed production dates.
  • You must work to minimize the strain on your relationships with customers and vendors with excellent communication on the status of your company’s performance abilities. Everyone is experiencing the fallout of this crisis, communication is key.

Remember, you are not alone.  Be proactive, make the difficult decisions, be informed, utilize the tools and resources available to you in order to navigate the turbulent waters stirred up by COVID-19.

Be Prepare for the Post-Crisis World

Ensuring our businesses survive the COVID-19 crisis is merely step one.  Business owners should be looking beyond the current environment and start positing themselves for success in the post-crisis world.  Once you have ensured the continuity of your business, start considering what you can do now to maximize your opportunity during the recovery phase.  Consider the following:

  • What are the demographics of your customer base? Who is likely to be successful and who is not?  How will that affect your production and what changes should you prepare for?
  • What can you do to retain your talent for the recovery phase?
  • What will your industry look like in the recovery phase? How can you prepare for the recovery?  If you are prepared, it is possible you could take a commanding position in your industry.
  • How can what you do be modified to embrace opportunities that present themselves in the recovery phase?
  • Evaluate current supply chains and options that are available if current suppliers cannot keep up with demand or cease operations.
  • Surround yourself with professionals that you can consult with as you develop your plan.
  • There’s no “how-to” book on what we are experiencing. Be creative.  Be nimble.

In these uncertain times, no one has all the answers.  Be leery of anyone who claims that they do.  However, collaboration always yields better results than isolation.  Consider forming a group of professionals in your industry to work together to share ideas and resources.  These are uncharted waters, but difficultly and disruption generally lead to innovation and progress.

If you have any questions about how these issues may impact your business, please consult with your trusted advisors. Kernutt Stokes has a number of resources that can be found here. We are providing updates as they become available.

You can also contact our office at (541) 687-1170.