Three Stages to Navigating from Crisis to Success
Three to six months of cash to cover business expenses? That ship may have sailed, but it’s not time to panic, it’s time to make a plan. Many business owners have succeeded by trusting their gut, but this is not the time to wing it: it’s time to put in place tools and forecasts to support your decision-making process with data, and formal communication systems to keep track of a remote workforce.
In Part 1 of this series, we said some believe that 60% of businesses are down but surviving; in large part, their success will be due to their ability to change course over the coming months. Those who succeed will have stronger, more profitable businesses and will be able to command higher valuations from potential acquirers when they decide to exit. The financial results during the downturn may be discounted by potential buyers if a strong recovery is evident. There are three stages to steer your business from today’s crisis to long-term success: Stabilize, Strengthen, Reimagine.
Stabilize: focus on keeping the doors open
- Put in place a communication plan for the core management team and employees who may be working remotely
- Evaluate whether your workforce has tools and information they need (home office supplies, access to systems and data, childcare) to operate efficiently and offer help when necessary.
- Supporting the culture and building morale go a long way toward Incentivizing key employees to retain talent.
- Develop a cash flow plan to weather the downturn. Increase speed of billing, accelerate collection
- Assess expenses in view of current revenue stream, what’s essential vs. what’s discretionary. This includes workforce, vendors, and facilities. Forecast cash flow under multiple scenarios, ideally by week, or the next 3-6 months.
- Tap external sources of funding
- Take advantage of all government assistance (PPP/EIDL). Tap existing bank relationships and renegotiate covenants where possible. Look at alternative financing options (factoring, mezzanine debt, minority equity).
- Use downtime to clean house
- Touch base with customers and suppliers; they are suffering too. The human factor can cement those relationships.
- Literally clean out obsolete inventory, equipment, office supplies.
- If you have free time on your hands, this is a good time to launch a new website and develop marketing materials, social media outreach, and content marketing such as blog posts.
Strengthen: restructuring to emerge stronger than ever
- Make changes needed to reflect the “new normal” that may persist for many months if not years
- Revise 2020 budget based on current revenue and cost trends
- Track actual 2020 results on a monthly basis to 2019 historical, original budget, and post-COVID budget
- Implement a monthly close with good controls and produce financials monthly
- Consider sharing financials with additional layer of employees to increase motivation and performance
- Evaluate human capital needs and compensation structure
- Team composition and retooling may be needed
- Compensation reduction for team and owners should be matched with incentive structure
- Technology and systems evaluation
- Are they up to date and adequate for today’s reality?
- Had you known what you know now, what information could have been used three months ago and how can that data be gathered?
- Are business continuity plans in place and adequate?
- Product and customer evaluation
- Product line analysis: invest in the stars, jettison the dogs
- Customer analysis: apply 80/20 rule to determine which customers to focus on and exit unprofitable relationships
- Evaluate sales channels, pricing, and terms
- Supply chain evaluation
- Evaluate alternative sources of supply, noting supply bottlenecks
- Negotiate with suppliers, rewarding those who support your business
- Evaluate outsourcing and insourcing opportunities
- Optimize inventory levels
- Facilities evaluation
- Profitability analysis by location
- Restructure underperforming locations or consolidate
Reimagine: pivoting to growth
- Market and competitive analysis
- Assess market and buying patterns: how have customers’ buying patterns changed based on changed economy and social environment?
- Have any competitors shut down, are there adjacent product lines with unmet demand?
- What new opportunities have arisen based on market changes?
- Team reinvention
- Virtual team meeting to brainstorm ideas for new products, new markets, other opportunities
- Encourage entrepreneurship and ownership-mindset: offer incentives for successful ideas to everyone
- Make opportunistic hires as they become available
- Determine resources needed to implement the new plan
- New locations based on changing market dynamics
- Sources of supply for new product offerings
- Human capital needs
- Better cash and business forecasting systems
- Create a business plan
- Base, optimistic, and pessimistic case scenarios
- Contingency planning for economic decline, ongoing pandemic, natural disaster
- Execute the plan, revising on a regular basis
BMI has compiled a list of resources for business owners dealing with COVID-19. Our advisors are available for individual consultation, particularly for business owners who are concerned about the impact today’s decisions may have on a future exit. Contact us through our website.