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Changes that will help your business navigate the crisis

Scott Wait

A crisis can be an opportunity disguised in the form of a problem. Now is the time to make changes to sustain your business through the current economic crisis. Here are six actions to navigate through the crisis:

Manage cash effectively: Credit used to be king. Now, cash is king. Forecast cash flow monthly and bi-weekly, when possible. Change your collection policies to reward early paying customers, and review customers’ financial strength monthly. Stay in touch with your customers to assess their needs and financial condition. Review your vendors and make changes early when you discover financial trouble so that you can minimize interruption with products and services to your customers.

Modify your operations with recession in mind: Reward your employees for increasing and preserving cash flow. To minimize anxiety and morale with your staff and customers, consider across-the-board wage reductions before layoffs. If employee cuts are necessary, lay off more than you think necessary – your team and your customers will adjust better to fewer cuts. If key employees must be furloughed, consider having them work as consultants to the company per diem or by project.

Review finance and lease agreements: Renew finance agreements early, including lines of credit or building loans, and have alternate plans for your financing needs. Some banks may not be lending in certain industries such as construction or real estate due to perceived risks. Consider raising equity capital from investors. Advantages include that the equity funds can improve cash flow by lowering monthly principal and interest payments. One tradeoff is that you will be serving more “masters” as compared to your banker. Renew lease agreements early. Office leases are at the lowest rates in 10 years. By locking in agreements early, you will stabilize cash flow and property values.

Watch for business acquisitions: If you are a possible buyer, you have solid businesses that are now valued at a discount due to the current crisis. As a seller, you can stabilize cash flow by merging. Other options include joint ventures with competitors or vendors for business growth in this environment.

Change your product or service mix: Consider changing your focus to industries or customers who are more stable during the recession. Make changes to provide more products with relatively short sale to cash-in-bank cycles.

Update your business plan with recession in mind…and for recovery: Evaluate every aspect of your business with financial projections for recession scenarios. Foreseeable revenue levels may be 10 to 20 percent below the previous years. Prepare financial projections and operations that support various recession scenarios. Update your business plan for an economic recovery scenario of one, three, or even five years into the future. Companies that have better alternative business plans and that take action effectively will prevail and prosper in these times.

Scott T. Wait is a certified public accountant and a partner in RS Wait, Chtd. of Reno. Contact him at scott@rswait.com.