Nathan Perkins Get ready for the restart
The Coronavirus epidemic has abruptly and unexpectedly changed the operating environment. Even if your company wasn’t impacted financially, the human toll on your staff, customers, and partners has likely been a management challenge in and of itself.
Here’s the good news: this, too, shall pass. Market recoveries followed the 2007-08 financial crisis, the 2001-02 tech bubble burst, and the 1987 market crash. We should expect the same in this instance of economic turmoil. But companies navigating the current crisis can’t simply run out the clock and await their silver lining. Instead, now is the time to prepare for the restart with careful planning and some soul-searching. Consider the following steps if you’re looking for a roadmap to develop your post-coronavirus strategy.
- Acquaint yourself with the CARES Act
The sweeping federal stimulus package, passed in late March, contains several low-interest loan and grant opportunities for small and mid-sized businesses. Consider that the typical company only maintains cash to cover operations for 27 days. In a normal environment, that may seem fine, but things have changed. Among the resources made available by the CARES Act, you can now apply for a loan with generous repayment terms to cover various short-term expenses like payroll. For details and application information, visit the SBA’s Coronavirus Resources page. https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
- Don’t give up on new business
Every sector deemed critical by federal and state authorities (healthcare, energy, defense, etc.) invests large sums of money in repairing, upgrading, and building new facilities and infrastructure to help them deal with this crisis. The CARES Act has set aside funding for related projects, which could produce a consistent pipeline of work for the foreseeable future. Keep an eye out for new projects where you can deploy resources.
- Get your finances in order
If you’ve always sought to bolster your accounting and financial reporting functions, but daily business kept getting in the way, now is the time to take on these projects. A credible financial dashboard is your most essential tool during a crisis. Keep an eye on your working capital and quick ratios, and be honest in your assessments. If problems are looming, don’t wait until you miss a payment or find yourself in an unmanageable cash crunch. During market downturns, financial institutions and non-bank lenders are generally willing to strike forbearance agreements, make loan modifications, or provide other solutions, including short-term funding. But remember, timing and candor are critical. When you leave your financial partners in the dark, they may misread the situation. That can have consequences.
- Maintain open communication with your clients and team
During difficult times, everyone is feeling additional stress. Your clients need reassurance that your product or service will be delivered as usual. If those commitments can’t be kept, they must hear why and when they can expect fulfillment. Setting expectations based on the best information you have at the time is good practice. Meanwhile, your employees need clear guidance. Your rank-in-file should hear what you’re doing about the situation and how it may impact their livelihood. Top associates must be informed and properly empowered to communicate on your behalf whenever necessary. The more you can keep an open dialogue, the less you leave up to speculation and the anxiety of your stakeholders. And when you maintain relationships with your stakeholders during difficult times, the stronger the relationships will be once you pull out of the crisis.
- Spin up some internal projects
If you can keep your staff working and engaged, even if they’re not directly interacting with customers, that’s a good thing. Use this time to perform overdue maintenance, cleaning, or other projects that have gone by the wayside because you were too busy. The more you can do to be prepared when things turn, the faster you can service your customers and generate new business. Get your sales materials, office space, inventory, and equipment ready to spring into action.
- Prepare your business for the next crisis
Start by re-evaluating your capital reserve. Is your current cash position manageable? Would you have been better served by a more conservative strategy? If you’re dissatisfied with the answers to either question, be prepared to engage your accountant, financial advisors, and banking partners for some constructive solutions. You’ll likely find answers in budgeting tweaks, balance sheet modifications, and lending arrangements.
- Take a hard look at your wealth concentration
Are your personal finances diversified, or are your holdings heavily weighted in your business? Many business owners have most of their net worth tied up in their company. Times like these reinforce the theme that having all your eggs in one basket doesn’t always work. The economic environment comes in cycles, and once the window to gain some liquidity opens again, you may want to take the opportunity to diversify your wealth out of the business. Don’t miss the next window. Take the time now to consider minority sales, dividend recaps, and employee stock ownership plans (ESOPs). https://info.csgpartners.com/what-is-an-employee-stock-ownership-plan-esop
The sad fact is that not all companies will survive this crisis, but if you’re resourceful, prepared to do some planning, and utilize available resources, you stand a much better chance. If you can get through this, there will be unique opportunities to capture market share and further new partnerships that would never have arisen otherwise.
Nathan Perkins is recognized as an expert in the investment banking space and speaks regularly on the topic of ESOPs as a liquidity strategy for business owners. Throughout his 20-year career, he has advised on over 300 ESOP M&A transactions encompassing over $1 billion in value. Prior to joining CSG in 2014, Nathan was a Vice President at Bank of America Merrill Lynch, where he focused on ESOP strategies for ultra-high-net-worth families. He held a similar position at Morgan Stanley for over seven years.
