Here is a three-part process summary that we recommend getting through the current economic shutdown.
Step 1: Cash is King
- Contact your landlord and negotiate a 90-day rent delay. You may have to settle for a major reduction rather than 100% but you are in the driver’s seat. Many local governments have suspended eviction and foreclosure processes.
- If you have a bank line, draw it all down and keep the cash available in your accounts. Once you have the cash, you have leverage to deal with your banker.
- If you have leased equipment, contact the lessor to negotiate interest only payments for six months.
- Analyze your accounts receivable to determine who will pay and who won’t. Some of your customers will also ask for reduced payments so you be prepared to deal with them.
- Look at your sales pipeline to determine if anyone will still be buying. Offer deals where needed to get the order. The more pending sales, the stronger your future.
- Contact your vendors to set up payment plans and be more flexible with those vendors that you need in the future. Conserve cash but don’t burn bridges.
- Put all this information into a 90-day, weekly cash forecast. We recommend having three scenarios: best case, likely case and worst case.
Step 2: Back to Basics
- Look at every aspect of your daily operations. Tie your expenses to a sales ticket or to a customer. If the expense does not have a direct link, question whether it can be postponed.
- From Step 1, look at your sales forecast and look for ways to offer deals to boost it. Look for possible new clients that would jump on a deal. If you can lower inventory, do so.
- Look at your staffing to who supports sales, product/service delivery, or support for those people. If a person is not directly involved in these areas, they go on furlough.
- For the remaining staff, defer 25% compensation for six months. Defer rather than reduce so they will feel respected and put in the extra effort needed for an understaffed company. Communicate, communicate and communicate. It is critical that employees know the survival plan which directly affects their survival plan!
- Communicate your COVID-19 plan to your landlord, banker, key customers and key suppliers. This tells them that you will be there to fulfill your obligations.
Step 3: Survive or Grow
- With the information gathered from the parts 1 & 2, determine what will be needed past the initial 90 days.
- Determine who your weakest competitors are and call on their customers. Their worry may move them to you since you have a plan.
- Work with your key suppliers on your growth plan to see if they will support you. If growth is not an option, work with them on an extended survival plan.
- Use your three scenarios from step 1 to develop alternative plans for survival and growth.
C Squared Solutions offers fractional CFOs and COOs for businesses in nearly all industries. We have successful track records in helping owners analyze situations like this and securing funding. Give us a call and let’s discuss your concerns.
