We all have fear, but know that customers aren’t going anywhere, they’re just temporarily on the sidelines. Consumers won’t abandon the idea of buying again, and despite the negative feelings we may have now, we need to be inspired by the possibility of great things on the other side of this.
We entrepreneurs need to be leaders. People are looking to us to provide faith and hope. Despite our own fear and despite how difficult it is, our employees, our customers, and our suppliers are all depending on us.
So let’s talk about what to do. First off, make sure your IT and technology are working, you need a solid internet connection. Acquire a communication method such as zoom or slack so you can meet and communicate with your employees. Make sure your antivirus software is in good working order. Make sure email and your provider (such as Constant Contact or Mailchimp) are all in good working order. Identify employees that can work from home. Develop a plan to enable them to work from home.
Speaking of employees, at this point I must give you the standard disclaimer that every situation is different when it comes to what to do with your employees, so I fully admit to generalizing a bit here. However, I believe you can still use what I am about to say as a guideline.
There are three main scenarios:
The first is if you are completely closed with no revenue. Let’s say you are off 70 to 100% versus the same period last year. You likely need to lay off everyone with the exception of your general manager. You’ll want to try to keep that one person to bounce ideas off of or to help you create ideas even if they’re working part time or less. One of the things you need to do at this time no matter what revenue stage your business is in is work on projects that you haven’t been able to get to that will improve your product, process, and efficiency. Having a general manager or some right hand person that you can collaborate with can help tremendously in this process.
The second scenario is that you have some revenue coming in, let’s say you’re 30 to 70% off versus the same period of time last year. In this case you need to lay off most of your direct labor and just keep enough of your best direct labor to do the lower volume. Some businesses have to go into a person’s home, and in that case, it’s up to the customer to accept your employees in their homes and it is also up to the employees to work while being exposed to other people. We have to allow both customers and employees to make these personal decisions. We also need to lay off administrative staff with the possible exception of one who will be able to help you with financial statements and gathering data from your business performance like bookkeepers.
The third scenario is if you are only off 10 to 30% versus the same period last year. In this case you may need to lay off some of your least effective direct labor workers. It’s usually best to do this because you will be able to test a smaller head count to see how effective it is because ineffective employees are not usually missed much. Once again, both employees and customers need to decide whether to enter/accept entering customers’ homes. You may also need to lay off administrative staff or at least reduce their hours with the possible exception of one who will be able to help you with financial statements and gathering data for your business like bookkeepers.
It’s critical that you engage and communicate with your customers. Update them regularly, and make sure if you are a business that goes into homes that they understand you are taking health precautions. Consistently let them know what your business is doing to get back into a routine and if you are a B2B company call them frequently to ask how their business is doing. Email and social media work well here, and even telephone is good. Let’s never forget the telephone, especially for our best customers. Communicate tips and advice that your product and industry offers to your customers. Publish content on the internet-you have time now!
Call suppliers, vendors, and landlords to ask for extended or creative terms. The vast majority of people are afraid to do this, but speaking from experience I can tell you that it is much better to communicate and ask for concessions than it is to ignore your suppliers, vendors, and landlords completely. Make sure to tell them right at the beginning that you have no intention of backing out of paying them, this will get them to really engage in the conversation. One strategy you can use on landlords is called Blend And Extend. In a Blend And Extend strategy, if you think you are going to need 2-3 months’ rent relief, you propose to take those dollars and spread them evenly over the remaining months of the lease. If the lease only has one year left you can do the Blend And Extend, or ask to extend the lease a year or more.
A similar strategy works with vendors and suppliers. If you can’t pay them now, see if you can stretch the amount due out over time. There are several creative ways to pay the amount owed over time. I have seen some companies propose delayed payments and when business came back, they let the vendor charge a slightly higher price for future goods until the balance was paid off. While you are talking with suppliers ask them what supply chain lines are going to be halted or delayed that will impact your revenues.
Call customers who owe you money (hopefully they were proactive and called you!) and ask them when they can pay. If they can’t pay in full now, offer them a payment plan, especially if they are a good customer. You have to be flexible as well, as there is a delicate balance here.
Communicate with your employees. Provide daily updates via zoom or videos for your staff. Use the telephone with your employees as well. Ask them how they’re coping with the pandemic. Be compassionate about their situation as they may have been laid off. You can also have a remote staff meeting with personnel whether they got laid off or not and if you’re going to pay them for their time, let them know now that you will be paying them for their time when they get back. Have brainstorming sessions with your staff on how you might mitigate risk, increase profit margins, increase opportunity and increase customer value. Figure out how to push your higher margin product in a way that adds more value to them, so that if the margin diminishes a bit due to the added value your over all margins will not be as impacted.
Communicate with your bank and make them aware of the status of your business. Your banker knows there is an economic crisis. Be candid about your situation, even if your credit line is fully extended. The bank will appreciate your call. You also may get some priority in the processing of the CARES Act Loan since there is going to be an inordinate number of applications. You will not regret making this call. If you do not have a banking relationship, make one now with the commercial bankers at your bank.
The main strategy through out this crisis is to buy time and preserve cash.
As long as you are operating you must advertise and promote. Remember to negotiate prices with advertisers. Know that advertisers are making deals and you want to make one of them. You might be wondering why I am strongly advocating for you to advertise and promote during economic turmoil. It all comes down to my personal experience during what had been called Black Monday back in 1987, when I was in the ski business. The stock market went down very significantly and there was panic and worry for weeks as the market continued its nosedive. Everyone was downsizing and cutting back on their expenses, especially in advertising. No business at all was advertising, including my competitors in he ski business. I knew there were still consumers with money who wanted to buy, and that the only life preserver for my business was more customers and more sales. So I reduced expenses, but NOT in advertising. This was a defining moment for me. I negotiated lower prices with advertisers and kept advertising at a high level. My sales were still off, but only by 5% while my competitors and many other retailers were off anywhere from 30-40%. In today’s economic turmoil, I retain this same attitude. On Monday, March 16th when the stock market went down almost 3000 points and Corona Virus was the only thing on people’s minds I sent out a mailing to prospects in the trades. I am still planning on launching my internet strategy in a few weeks, spending more advertising money than I ever have at Next Step CFO. In 1987, I learned that when your business is in a state of emergency, you promote despite all the negative emotions you may feel, and despite the psychological difficulty you may have spending money during an economic crisis.
So now what do you work on? Those projects—you know, the ones you thought about doing but never got around to? Now is the time to work on those projects that could never be prioritized before that will improve your product, process, and efficiency. See if you can train certain coach-able managers or employees to help them perform better and figure out how to do it remotely.
Come up with ways to add more value to the customer. You need to have REAL value to your customers now more than ever. Figure out how to offer things like warranties or free service or bundling products to make packages. Get creative!
Look into the CARES(Corona virus Aid Relief and Economic Security)Act Loan. In this loan package there are forgiveness provisions and there is no personal liability which needs to be considered when contemplating this loan. All of your other loans and credit card debt very likely have personal liability. This loan does not. Get your tax returns ready so you can expeditiously apply. Make sure your tax returns and financial statements are accurate and credible.
Finally, have a contracted CFO(Chief Financial Officer) help you with things like a 13 week cash flow projection, forecast-ed P & L, balance sheet and cash flow that can do multiple what-if scenarios to account for uncertainty, and understand how many days or weeks of cash reserve you have at all times including your line of credit. Have your CFO run your business and cash flow forecast at 15%, 30%, and 50% revenue drop and sales needed to break even.
I hope I was able to give you a few ideas on how to approach your business during this very challenging time. Remember, this is our defining moment. Stay safe and stay healthy.