With the very fast onslaught of the COVID-19 threatening to disrupt business operations through the region, there are three ways you can face the future: panic, do nothing, or plan. As a TAB Business Coach, my goal is to guide business owners through these tough times and help navigate the uncertain waters…and 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 of 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. We won’t go over that here. The question remains, though – 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 services businesses including restaurants, fitness and health clubs, and other services will likely see a sharp drop in demand and revenue as customers stay home. It could be made worse if the local authorities force your business to close or operate for fewer hours, or as contracts from state agencies are stopped as schools are closed. 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.
- 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 have to 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, a situation they are facing in China now that the effects of the virus have largely passed.
- Supply Chain – If you are a manufacturer, you’ll need to assess the supply of all of your component parts. Some of my clients are already experiencing shortages of critical parts. If you resell products from other suppliers, you will likely have similar problems, requiring you to be more resourceful with how you manage your suppliers.
- 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 effects 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 25%, 50% and a 75% 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 virus has passed. 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.
- Contact your lenders, creditors and landlords to extend your loan payment terms and delay paying your rent. Anecdotal evidence from clients has shown that many will be flexible – and as the crisis worsens they will NEED to be more flexible with their customers.
- If you run a non-profit, reach out to all donors 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 part time or consider layoffs.
- 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 crises 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 at all 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 re-assure 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 the mentor that is already familiar with your business.
- Investigate Federal and State Sponsored Disaster Loans and possible Grants if available. There are also incentives for keeping employees on board during these times. See https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/ and
Take Appropriate Action
Now that you have a plan, you have to 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. A business owner relayed to me advice I have never forgotten – the owner of an electronics distribution company whose sales dropped over 50% in a one year period during a slowdown. He had to make the decision to let his key employees go – many of them close friends – in order to save the business. It was the hardest thing he ever did. Eight years later he realized it was the only decision he could make to save the company and his family from financial ruin.
Finally, my recommendation would be to 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 wouldn’t have considered. At TAB, we understand the tremendous value a peer advisory board provides our business owner members as they learn from and support each other through their challenges. By sharing their expertise and unique perspectives with each other, they simply increase their chances of success.
Reach out to me at [email protected] if you would like to learn more about how TAB can help you and your business, or just talk about what your business is facing.