In the current business environment that has been decimated by the coronavirus, too many businesses seem to be in a state of paralysis. The market is full of uncertainty – from federal and state financial support programs, to the timing of eased restrictions, to medical treatments and vaccines. So much is uncertain, but this is not the time to wait for clarity, it is a time for action.
Over the past several weeks, my firm has fielded a multitude of calls from private equity firms, lenders, bankruptcy attorneys, family offices and entrepreneurs. Although strategic plans for these businesses vary dramatically, one things has been consistent – companies hardest hit by the shuttering of businesses are in a state of shock and are reluctant to respond to the crisis with the same level of aggression as this crises has put on them. Of course the decisions such as adding more debt, taking on a new partner, restructuring through bankruptcy or waving a white flag should be made with caution, there are many steps that businesses owners can and should be doing now to help retain, sustain and add value and resilience to their business:
- Cash Flow Management: Really understanding the cash inflows and outflows of the business, timing and potential risk associated. If you don’t have a 13 week cash flow forecast model, put one together now! And not just one model…put together one to model each potential risk or opportunity. That way, you will be prepared to take the right actions based upon what eventually unfolds. You’ll also understand which of the critical actions below you need to get after ASAP.
- Capital Assessment: Assess assets on your balance sheet for liquidity and understand what actions can be taken as well as timing estimated to convert any assets to cash. Look at credit sources available to the company and have conversations with your lender to ensure available credit will not be frozen. Develop contingency plans that could create access to additional capital (factoring accounts receivable, ABL, etc.)
- Supplier Management: Categorizing your suppliers as critical vs. non-critical and negotiating payment terms. Communicate with critical suppliers and work to negotiate extended payment terms. Delay non-critical supplier payments at this time and, if discretionary, terminate service. Consideration should be made to going to market to reduce costs of service providers and benefits (HCM / Payroll, Pharmacy Benefits, Health Insurance, Telecom, Office Supplies, Raw Materials, Accounting Systems, Business Insurance, etc.).
- Lease Management: Initiate conversations with your landlord to workout an arrangement for deferred or abated rent.
- Customer Management: Categorize your customers in terms of relationships and in terms of how critical your business is to your customer’s business. Contact these customers and call in favors for early payment or confirm that payments will not be delayed.
- Improve Documentation: There may never be another time in which business documentation can be prepared without impacting the day to day business. Documentation of critical operational and financial policies and procedures adds value by supporting recovery plans and enhancing business process consistency and repeatability.
- Generally assess the business for process improvement: The quickest way to free up cash is to eliminate non-value added work in your business. Walk through each major financial and operational process and critically assess what work is being done, why the work is being done, who is getting it done, how the work is being done, how effectively is it being done. Make a list and prioritize improvement opportunities based on level of effort and benefit to the organization with a consideration to time to receive the benefit of the change.
No matter what happens next in terms of the economy, taking the actions above will make your business more resilient, more profitable and more valuable. If you need help putting together a 13-week cash flow forecast model, assessing your business for improvements with short term ROI or driving improvements into your business quickly, please give us a call. We’re passionate about helping businesses get better.
Larx Advisors is a corporate finance and business advisory service firm created to serve middle market and lower middle market companies. My partners and our team joined Larx with a shared passion for helping small businesses grow and a commitment to offering our services at reasonable rates. We offer turnaround and restructuring, revenue enhancement, cost containment, business optimization and traditional transaction advisory services.