Part 1: So, Now What?

Let’s do a little bit of projecting into the future:  Pretend it is now July 1, 2020.  By this time, here in New Jersey, and elsewhere, most businesses have been re-opened, with restrictions.  People who have not been working are back to their old posts.  Your Paycheck Protection Loan is all (or mostly) paid off.  As it turns out, we won’t spend the rest of our days receiving a Universal Basic Income, composing new folk songs on the bagpipe and learning 365 different quinoa recipes for breakfast, lunch, and dinner.  It is time to be profitable again.  If you are a business owner or executive, some of the rules have changed, but it’s Game Time. Now what?

That answer is easier if you started planning back in March, April, and May. Remember those days, when we checked the news every half-hour for the latest horror, and everyone learned all about each other’s home furnishings?  Other than being shocked at your boss’s lack of good taste in window coverings, here’s what we’ve been through so far:     

Phase 1a (March/April):  Figure out how to operate with remote work set-ups, reduced demand, and possibly disrupted supply chains.   Obtain and use available government grants, loans, and employment-tax credit programs.   

Phase 1b (April/May):  Along the way, determine how best to use up those PPP funds so that the whole thing becomes what it’s supposed to be – a government grant – instead of a loan.

And here is where we are now: 

Phase 2 (May):  Forecasting time again.  But this time, it’s different.  Your forecast needs to be even more detailed (“granular”, as they like to say in the business schools) than before – and more dynamic.  Your trusted professional advisors should be asking you questions, leading to solutions:   

• You need to make some assumptions on how much demand in your industry will return, and over how long a period of time. What do you think are the best, middle, and worst-case scenarios?  Let’s begin modeling each one.
• What is likely to happen to your cost of materials and supplies?   
• You may have deferred certain loan payments and/or vendor payments. Your  customers might be doing the same thing to you.  Some of them might be out of business – permanently.  They’ll never pay you. As always, it’s not just about forecasting your P&L – you need a strong examination of your cash position, receivables, payables, and expected cash flow over the next 90 – 180 days. 
• Get in touch with your banker as soon as possible – and communicate, communicate, communicate.  You’ll need your bank’s support, and that means understanding what they want to see in terms of financial information and results.  How will this crisis affect your loan covenants and borrowing capacity?  Remember, banks are businesses, too, and they have their own reporting requirements to their regulators and shareholders.
• Can you really afford to bring your entire workforce back?  Maybe so, but perhaps it needs to be staggered, in phases.   
• By the way, what do your re-opened office locations need to look like, considering the possible expectation of distancing measures between co-workers?  We may incur significant cost to re-arrange work spaces. Let’s factor that in as well.

If your trusted advisor is not already starting these conversations with you, initiate them.  We can’t live long on government cheese.  Do the smart things now, and we can be those companies who lead the comeback.