April 1, and payments are due. Then there will be May 1, June 1…Rent, mortgage, auto loans, quarterly payments for insurance, credit cards, utilities, etc. all coming due.
As of last week 3.28 million people have filed for unemployment and everyone is scrambling to keep above water. There are projections that our unemployment rate here in the U.S. could top the Great Depression high of 24.9%.
This “black swan,” an external event and not a systemic financial crisis, will dampen our GDP, possibly deeper than we have seen since the Great Depression. Then the expectation is that we will see a modest improvement in Q3 and a robust rebound in Q4.
This momentary rebound will be a result of the stimulus packages by the Federal Reserve and The Treasury. $2T in fiscal policy and the Federal Reserve has moved monetary policy to a benchmark rate to just about zero. Now there is a proposal for more stimulus aimed at infrastructure – all good!
But what about the long-term?
Where we are today is a projected artificial recovery in the market because of the liquidity infusion from the government. Eventually the real recession will come. The global financial structure will crumble under the weight of debt.
Today, the massive bailout that was approved last week is a strategy to prop up our economy by supporting the American people, corporations, and privately held businesses.
SO WHAT CAN YOU DO IN THE FACE OF THIS UNCERTAINTY TO PREPARE FOR THE FUTURE?
The size and industry of a company dictates specific recommendations and that is what we at Legacy Partners provide our clients, however, here is guidance for any business, any sector:
1) BUSINESS ARCHITECT: Agile businesses that are able to quickly change their architect and respond to disruption through innovation will not only survive, but will thrive.
Assess how your business can adapt to this new business landscape and stretch beyond boundaries in uncovering new markets and how your product or service can be delivered. Macy’s department store was delisted from the S&P this morning. Carrier Global, an essential business…air conditioning…took its place.
Retail businesses, especially restaurants, have been flexible in immediately responding to this crisis by offering curbside delivery. How can retail change the architecture of their business and expand beyond their brick and mortar offering, perhaps a different product to a different target market?
Recessionary pressures force us to be critical of our business and create strategies to survive. How can your business become essential? Broaden your product or service. Create multiple income streams. With implementation your business will make it through the downturn.
Make a plan and take action!
2) CASH FLOW: In times of distress, “cash is king” and you must know your numbers as they are the keys to your success and they don’t lie. The margin for error is less in times of distress so be sure you understand your cash flow. How much is coming in? How much is going out? What expenses can be cut?
Consider renegotiating obligations, such as rent, and reduce all discretionary spending. Limit any unnecessary capital expenditures. Renegotiate any debt terms. It may be appropriate to draw on your LOC to gain liquidity to keep you afloat and surge ahead of your competitors. Keep your thumb on the pulse daily as we are in a very dynamic environment.
If you need a cash flow planner contact us. If you want to know more about opportunities to gain liquidity contact us.
3) REVIEW YOUR CUSTOMER BASE: Now is a good time to quantify the quality and concentration of your customers. Not all customers are created equal. Some are more profitable and now is the time to delineate good margin from bad margin customers. I know this is counter-intuitive, but focusing on replacing unprofitable customers will do wonders to your P&L.
A loss of a major customer in recessionary periods can take down a business. Diversifying customers across industries will also lessen impact from any external industry sector downturn impact. Recognize, however, that the cost of acquiring a new customer is always higher than retaining your customer base, so invest in your profitable current relationships and up your retention rate as your existing customers are gold and your competition is knocking on their door. Complacency won’t cut it.
Strategize to diversity and strengthen your customer base.
4) HUMAN CAPITAL: Be proactive and assess your team. Just a month ago we had historic low unemployment. Now you may need to layoff employees in the face of cash flow problems. It is better to furlough employees than try to wait it out and the business succumbs under the payroll burden. Many times a business will fail because they waited too long to contract. Assess if you can utilize freelancers and independent contractors.
Understand the Paycheck Protection Program. It might be the right solution for your business.
5) TECHNOLOGY: There is nothing like being forced to work from home to uncover weaknesses in how we utilize technology in our business.
Identify all inefficiencies and create a plan to improve or upgrade the technology utilized in your business.
6) BUSINESS CONTINUITY: Stress test your business. If you or a key employee were unable to work would the business thrive or even survive? If your supply chain was interrupted what is your backup plan? Uncover your weaknesses and create contingency plans.
In addition, please review all insurance such as business interruption coverage and buy-sell agreements. Now is the time to review all wills and trusts. It was reported this week that the first thing two doctors, who are home treating themselves for COVID-19, did upon hearing their diagnosis was sit down with their wives and review their wills. Sad, but it is astonishing how many people have not protected their families by creating even a simple will. You can go to legal zoom if needed.
Just do it.
7) DOCUMENT YOUR BUSINESS: Document all systems and processes in your business to ensure ease of duty transferability to a new employee or new owner.
What businesses thrive in recessions?
– Essential businesses – plumbing, cleaning, necessary repairs & – maintenance
– Food & Beverage
– Sin products – cigarettes, alcohol
– Health Care
– Senior Care Services
– Consignment Sales