If you’re running a business during the outbreak of COVID-19, here’s your first step: Remember, you’re an entrepreneur. Triage time is over; it’s time to start being intentional and “next stepping” your business issues.
We learned a lot from the last recession, and while this one is different, breaking down some of the issues with what we learned in the 2000s is an excellent place to start. As always, we are focusing on the business side of the house with this coronavirus small business guide, so we’ll leave the health advice to the CDC and WHO.
What do I do about taxes?
If you think you are getting a refund, file now! Cash is king, so get that in the doors.
If you think you are going to owe, deadlines have been extended and payment deadlines are pushed out as well. July 15 is the new April 15, so take advantage of the deferment.
What is the first process change I should take on?
Improve Your Collections
Adverse economic conditions always negatively impact your ability to collect payments from customers. Some customers are legitimately going to experience financial distress, and their ability to pay you will become impaired. Others will use an economic downturn as a means to slow-pay you out of fear or extreme conservatism. If you carry customer Accounts Receivable, please do the following now:
- Get clarity. Make sure your Accounts Receivable Aging is accurate and make sure you are reviewing it weekly (at the very least).
- Escalate sooner. You should have a standard collections process in place to follow up with clients using messaging and actions that escalate as their Accounts Receivable balance grows older. Go ahead and move clients a step ahead in your escalation process so that you are taking action sooner than you would have during more favorable economic conditions.
- Get customers to communicate. When you see a client slowing their payments, get them talking. You need to get a response from them on how (and when) they are going to pay. If they do not communicate back or you get an unfavorable response, take immediate action. This might mean discontinuing work or developing an agreed-upon payment plan with the client.
What information should I get?
Focus on the break-even point.
Time to get familiar with your fixed costs. Start with your headcount, add your rent, and any other fixed costs (software subscriptions, regular bills, etc.).
Split the costs into three buckets: essential, nice-to-have, and first-to-go.
Now determine what revenues and margins you need to be able to sustain the essential and nice-to-have scenarios.
Now think through the leading indicators for those scenarios. Information is power right now for entrepreneurs, so start really thinking about how to see one month ahead in your business.
Is it time to fire people?
Have you thought about a part-time option from your employees’ perspective?
Likely, you’ve now moved your team to remote working or will do so soon. With the realities of remote work, your team may have additional unforeseen responsibilities, like supervising children that cannot go to school or assisting elderly family members. Have a conversation with your team this week about what this change means to their work schedule.
A couple of questions to follow-up with: Do they even want their work hours to stay the same? Will they need to scale back due to other responsibilities now?
Understanding what is best for your team might mean moving some to a part-time role that allows them to manage their new situation best.
Have you thought about partial pay reduction versus layoffs?
I have learned a ton from my father over the years who has been through a few more of these cycles than I have. During one recession, he needed to cut payroll by 20%. He actually got the team he was planning to retain (the 80%) together, and he told them what the choice was, we can fire the people not in the room or everyone take a pay cut. He was overwhelmed with the team’s response. They unanimously wanted to take the pay cuts, and no one ended up getting laid off. They also really appreciated the transparency and having input on the choice.
If you are going down this road, I would encourage you to do pay cuts in tiers vs. an across the board. Consider something like:
|$60,000 – $100,000||20%|
|$40,000 – $ 60,000||10%|
Employees get it — these are tough times. My dad ended up only needing 60 days back then, and then everyone’s salary went back to normal. Who knows how long this new normal will last, but I bet your employees are ready to stick it out with you.
Can I borrow money?
Traditional lenders are on lockdown — talking to bankers this week, their credit departments are skittish. Private equity and venture capitalists are even advising their portfolio companies to draw down their line of credits completely, so banks don’t trim back existing facilities.
But new conventional debt is out of the question probably.
H3: SBA Disaster Loan
The U.S. Small Business Administration (“SBA”) Economic Injury Disaster Loans (“EIDL”) appear to finally be available in all US states. Please go here to learn more and to apply for the EIDL. The Acuity team has gone through much of the process of applying for the EIDL to both test the process and to help out clients. Here’s some of the information that you’ll need to complete the application:
- Business info: financial statements (last year’s and this year-to-date), tax returns, insurance policy information, listing of liabilities, monthly sales data
- Personal info: personal financial statements (as of recent date), tax returns, listing of affiliates (info on other companies you have ownership in and/or other equity holders in the business you’re applying for)
Small businesses have reported that the time to complete the application has been anywhere from 4-16 hours based upon the complexity of their business and how well organized their information is.
Additional Funding Resources
The SBA isn’t the only source of funding during the COVID-19 crisis. A multitude of government and private sources have emerged to help small businesses with funding needs. Our tech stack partner, Gusto, has created a fantastic list of relief sources by state that they are updating on a continual basis.
What else can I do?
Do what you can to help others.
While we believe the above items are helpful to all small businesses, it is likely that you’ll still have specific financial questions about your own company. Our entire CFO team has allocated time to support you right now, so please take advantage of the free Acuity CFO Office Hours. Please remember that there is no charge for these office hours, and we would be honored to help. We can also take over from a full-time staff person that you had to let go. We are all hunkering down, so if you need to understand what a part-time or interim solution might look like, let us help you figure that out. Schedule a call, and let us help with those two things right now.