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This is an article of financial strategies our CEO, Matt Garrett shared with Vistage. You can view the original article on the Vistage Website.
As the COVID-19 pandemic continues to worsen, finance experts say the global economy is spiraling towards a recession at best. Some also warn that a depression may be right around the corner with unemployment levels we have not seen for 90 years.
“This is 100% unprecedented,” says Matt Garrett, CEO of TGG Accounting, who has spoken to more than 600 Vistage groups about finance best practices for small and midsize firms. “We’re going to lose years and years of productivity. It’s going to present a massive unemployment problem…and a massive problem for the business community at large.”
Having led businesses through the 2008 recession, Garrett offers candid advice for CEOs trying to prepare their firms for today’s tumultuous environment. “Run your business by the numbers,” he says. “Get the numbers right and then make decisions based on those numbers.”
From a tactical point of view, Garrett says, this means taking seven steps.
Your disaster planning team should include an attorney, insurance agent, insurance expert, HR lead and accountant. Working together, the team should forecast what might happen if your business revenues decrease by 25%, 50% or 75%.
This is a critical step, involving several parts:
Team up with your attorneys and accountants to review contracts, paying special attention to force majeure clauses. Review termination rights, termination risks, renegotiation rights, personal guarantees and other contract provisions, and consider whether you need to renegotiate any of these terms.
Work with your accountants to decide which invoices are mandatory pay, slow pay or no pay. In addition, work with your attorneys to use stop-pay options on liabilities that don’t have personal guarantees. Then, consider a strategy that large companies such as Ford and HP employ: Withdraw your entire line of credit, and put those funds in a separate bank account. “This gives you a cash parachute in case something really bad happens, which I think it’s going to,” says Garrett.
Partner with a good tenant broker or large real estate firm to renegotiate your lease. Monitor federal guidelines for evictions and the moratorium on evictions. Ask for discounts on proactive purchasing or cash purchases for costs related to office supplies or technology contracts. Look for ways to reduce the little things that can add up to big costs, such as credit card fees, lease and loan fees, bank fees, insurance costs and payroll taxes. Work with bankers to review the latest rules for small business loans and repayment options.
Most likely, people are your biggest business expense. To manage them better, start reviewing utilization on a daily basis, rather than a monthly basis, and take measures to increase your employees’ accountability. At the same time, look for outsourcing alternatives in accounting, IT, HR and other areas where you might not need a full-time employee. Finally, make a conscious decision about furloughs or layoffs for employees that may become necessary if the business reaches a certain level.
During a recession or depression, turnover is inevitable, so if those events occur, it’s important to develop a plan for getting new workers up and running. If your business only has one or two signers — as many do — think about planning for alternative signers or alternative points of contact.
To be clear, these steps are not short-term fixes. They’re strategies for surviving what may become a long-term struggle. “This [crisis] is not a temporary thing,” says Garrett. “We aren’t going to bounce back three weeks from now.” That’s not to say that businesses won’t bounce back at some point. They will. “This is survivable,” Garrett says.
This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.
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