During these unprecedented times, it is hard to always know what best practices should be in place and the best next steps to take. As an organization, you never want to be in a position where access to one another, your teams, your customers, or your vendors is limited. Though context and wisdom must be considered, we wanted to take a moment to outline some items to consider during this time of uncertainty for you, your partners, and your people:

Leadership

  • Committee: It is recommended to form a leadership committee of at least 3 people (leaders in your organization) to make determinations on working arrangements, key stakeholders, and communication plans, such as working remote policies and what expectations you have during this time.
  • Availability: Perhaps the most critical thing during these times will be for firm leaders to remain available to your people, vendors, customers, and creditors, albeit virtually or via telephone. For your people, prioritize their needs for now and make sure they know they are cared for and okay; you will need them to help you through this and coming out of this. Depending on your industry, you simply may not be able to respond to every external contact reaching out. Consider setting an out of office reply on your email and changing your voicemail prompt to let senders and callers know you are processing email and responding to phone calls, respectively, as able.
  • Accommodations for Staff: Consider what reasonable accommodation arrangements you should make for your people that are within budget and reason, considering the uncertainty around this situation and guidance from government agencies. Also, ensure you are offering and doing those things you are legally required to for your people based on Federal, State, and other recent rulings/guidance. Contact your legal and business advisors for help with your specific situation.

Supporting your Stakeholders

  • People: Communication internally should be commensurate with the environment and context you are within. We live in a day and age where email can be sent quickly and with little effort. It is recommended that an email is sent firmwide at every new development that impacts your workforce’s situation, and at minimum weekly. Consider also designating someone internally to help staff if they need assistance securing a place to work, shelter, food for themselves and their families. Do not assume your people are unaffected by this emotionally, financially, or physically.
  • Customers: Your customers are key and are likely reeling from the effects of this pandemic just like you are. Having timely contact with them can help take out the guesswork for both sides. Be sure to think long-term. For instance, it may be that a key customer needs to put things on hold for the time being and you should consider accommodating this request as an investment in the long-term relationship. It is very possible that you could be in a similar situation with one of your key vendors. Hopefully you do not have a customer concentration risk here that will drastically affect your overall business.
  • Vendors: Regarding your key vendors, hopefully you do not have a vendor concentration risk if one of them has been mandated to shut down or is on leave. Work with them, like above reach out and take out the guess work. Identify your needs and what you need to keep your organization productive and work out a plan here. Again, remember the long-term relationship.
  • Creditors: Know your options here and work with your current creditors in this time, pull in your legal and business advisors as you have concerns. The likelihood is that your creditors have capital at risk with you and others affected by this issue, making communication key. Work with your creditor on what their expectations are and where you might be able to avoid going into default on payments and/or covenants.  Open communication is always best. You might be able to obtain interest only payments for the time being.
  • Self: This may be the most challenging time for anyone involved, but especially for business owners and leaders. Our recommendation is to do the best you can to keep communication, leadership, and accommodations present but also to take time, and maintain that time away, for yourself to care for both your own and your family’s wellbeing. Without rest and getting away from what is proving as chaotic for all of us, you may not be as helpful, resourceful, or productive as you otherwise could be.

Considering Impact

Vertically

Vendors: Some form of analysis will need to be done to understand fully what the ramifications of key vendors being shut down might mean for your cash flow position soon. Additionally, if you need widget X to complete your product and do not have an alternate source for this widget X, you may need to get creative in how you monetize what you do have. Depending on your context, much else will need to be considered.

Customers: Similarly, analysis is needed to identify what the effects of less, or lost sales might mean for you and your team. If you are locked in a vendor arrangement with limited to no relief and your customers are not able to support the sales piece, you need to identify your options quickly both those internally and externally.  For example, calculate your perceived run rate of building up vendor stock. Then consider how long it might be sustainable. Depending on your context, other factors will need to be considered.

Horizontally

Creditors: An analysis of your loan covenants and cash flow expectations would be key to complete sooner rather than later. You should identify how long of a run rate you may have before possibly defaulting on loan covenants or even payments. Additionally, consider that vendors you are unable to pay might become creditors of yours. The key is not to panic and to know your cash flow run rate. Being able to weather the storm for a few weeks is different than for a few months. Also consider contacting your credit card companies to identify what relief they may be able to offer you such as skipping a payment cycle with no penalty.

Competitors: As you are trying to navigate the market space and understand where you can help, it may be that your competitors are taking a big step back. If that customer mentioned above cannot buy but there are others in the marketplace in need, it might be a wise time to prod them to see what might be possible. These situations often create the fight, flight, or freeze reaction for businesses and their owners. Most everyone seems frozen right now and not sure where things are going. Think of strategic opportunities that might be available to you in this unique time such as acquisition targets, growing market/profit share, and possibly even using resources and skills you possess to enter a new market. Obviously, capital and cash flow may be tight so you will have to be extremely strategic and wise in how you pursue any of these options.

Internally

People: Your people are what is most important to your team and your success. We know it is hard, but can you make the long-term investment to see this through with them all on the payroll? Can you keep them productive and meet your business targets, allowing for enough cash flow to follow? If you cannot, and must make tough decisions, be sure to understand your full picture with your customers, vendors, creditors, and people; this should be your last resort. Communicate clearly why and let them know there may be opportunities down the road but for you to keep all current jobs going might result in no one having jobs. Additionally, consider what other resources might be available for you and your people possibly through government programs, such as Unemployment Insurance and Benefits, and assistance.

Limiting expenses and expenditures: Consider pausing repeat purchases that are not business necessary. For instance, you may want to hold off on purchasing office supplies, restocking office beverages, and restocking slow moving inventory. Consider limiting any excess compensation being received by owners over and above what is necessary, including payroll, defined benefit plans, and 401(k) plans. Obviously, it is recommended to discuss with appropriate parties such as: Third Party Administrator, Trustee, Financial Advisor, and Legal counsel, before doing so if it impacts more than just owner(s).  Your plans may require you to continue to contribute for legal or design reasons. As cash flow returns, you can make up for lost contributions.

Finding sources of cash inflow: The government has already issued some guidance and allocated some resources through the Small Business Administration (SBA) Disaster Loan Assistance Program. You can access additional information regarding this program at https://www.sba.gov/funding-programs/disaster-assistance. If you have a line of credit, consider drawing on it to ease through this time. If you do not, it is unlikely you would be able to initiate one during the current climate, but it might be worth shopping alongside the SBA option mentioned above. Equity funding might be hard to come by currently as funds are tied up and with the markets down, liquidity balances are likely out of balance for investor portfolios and if equity funding does come, there likely will be a premium expected in the form of additional voting power, additional percentage of ownership, etc.

Policies and Time Redemption

  • Working Remote: Ensure your remote working policy is refined and polished, consider having your attorney review it. You want to ensure sensitive personal information (SPI) of your employees, vendors, and customers is kept secure and safe. Additionally, you want to make sure your systems are setup for your teams to connect and communicate remotely/virtually in a productive manner. Also, expectations for working remotely need to be clearly defined and not left to interpretation.
  • Working on-site: For those that are unable to work remotely, what processes and procedures do you need to have in place to ensure safe protocols are followed allowing for maximized productivity and safety of your people and those they interact with at home and in the marketplace is prioritized? These need to be defined and communicated timely.
  • Redeeming the time: Lastly, there are times when the world slows down, oftentimes when you least expect it, but there are many ways to use this time in a productive manner. Admittedly, you are not likely to surpass your revenue numbers but there are trainings, readings, and other opportunities that have likely been haunting you for some time that can now be pursued through distance learning. Some of it is a minor, or what could be major, investment but what better way to prepare to bounce back than having recently acquired a new skill, resource, or offering?

We hope this gives you some ideas and organization for approaching this season. You are not alone, and we are just a phone call away to talk through concerns you might have. We are praying for all involved, affected, and will look forward to a bright future alongside you to follow.

In no ways should any advice herein be relied upon without consulting your business and/or legal advisors; as such, KHA Accountants, PLLC will not be held liable for any decisions or actions taken as result of the above information. It is intended for illustrative and discussion purposes only.