Fortune favors the bold, and in order to get through this crisis, organizations must take decisive action.
We’ve prepared a playbook to aid business leaders in taking decisive action and optimally positioning their organizations.
While no list can be comprehensive, professionals from Sikich’s Technology, CPA and Advisory practices have aggregated the questions being asked and steps being taken by the best run and most agile organizations.
The first step is a comprehensive situational analysis of your business. This is a rigorous assessment of what has and has not changed, with particular focus on the elements that have withstood the shock and which ones have been adversely affected. Institute weekly tracking and measurement around your key performance and business indicators. Many of these KPIs may have changed in the aftermath of COVID-19. These KPIs will not only measure your current state but also help you make decisions on what to do next.
Managing cash flow is always a priority, but the current backdrop has elevated it to the forefront. Cash runway is of the utmost concern and should be calculated under different scenarios. While prognosticators speculate on the shape of the upturn, follow the mantra of hoping for the best but planning for the worst. Run multiple scenarios assuming: (a) revenue shortfall that you experienced in the March and April timeframe stays constant through the year, (b) the revenue shortfall persists into the first half of 2021, and (c) revenue declines accelerate through the end of the year. Depending on the nature of your business, you may need to run additional scenarios that factor in seasonality, customer concentration, etc.
The economy may bounce back in the second half of the year, and if so, you can adjust accordingly. However, if you do not proactively adjust early to a more dire situation, your business will not be in a position to survive.
Tightly managing payables and receivables can help any business augment working capital and serve as a bridge extending your runway additional month(s). Accounts receivable financing is readily available through banks or invoice factoring companies such as BlueVine and Fundbox. If you have a good banking relationship, reach out to your account representative to explore credit options, including extending the loan amortization time period or establishing/increasing asset based revolvers.
The federal government has acted aggressively to help SMBs with the CARES Act. The CARES Act components include: the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan Program (EIDL) and the Employee Retention Credit. (Note non-banks such as PayPal and Intuit have recently been approved to administer PPP loans.) The PPP allows companies to borrow up to $10 million, computed as 2.5x average monthly payroll, while EIDL allows up to $2 million in loans and a grant of $10k under its original terms.
If you are a venture backed company, talk to your investors about raising additional funds at an attractive price, perhaps at the same valuation as the last round or through a convertible note or simple agreement for future equity (SAFE) to expedite the process. Y Combinator has templates for SAFE and convertible notes on its website. Venture debt is another avenue to explore, especially if you are a venture backed company. Venture debt is typically subordinate to senior debt from a bank, so it will carry higher interest rates (i.e. low double-digit annual interest rate) and financial covenants, but if it means the difference between running out of cash before the upturn manifests, then it may be a cost worth taking on.
The biological crisis means the way every business operates will undergo some change. This will have a major impact on every constituent of your business. And it will require a diligent look at all health, safety and legal issues that arise from coming back to work, opening up for customers and engaging with your suppliers and partners.
Forecasting is hard in normal times, and in this environment, it is downright difficult. Even so, you must build out a handful of scenarios that are based in reality and assume a wide range of outcomes. Every organization must relook at its forecast for sales, expenses and cash flow and retest its assumptions. These scenarios should include modeling cash flow, burn rate and liquidity under multiple scenarios: if revenue declines 20% for the rest of the year; or 30%; or 50%. Model the impact if revenue does not recover swiftly and stays at depressed levels well into 2021.
While it may be difficult, it’s paramount that every organization focuses on retaining and servicing existing customers, whether you are selling a product or a service. This also may be your best source of revenue, since you already have an established relationship. New customer acquisition might be trickier, but this is where low-cost, guerilla marketing strategies can come into play for both business-to-business or consumer sales.
With so much disruption to business, taking a fresh look at your product or service packaging, pricing and payment terms is a useful exercise. Are you better off bundling more into your offering or simplifying unbundling? Can you offer promotion pricing or discounting to certain segments to spur demand? Does offering payment term flexibility or use of credit make sense? All options should be on the table as a catalyst to spur sales.
Once you have gone through your checklist of actions, the last and extremely important step is to get your organization aligned and focused. Ambiguity and uncertainty about the future is fine, but your business can have clarity in its strategy, tactics and objectives. Make sure you communicate frequently with your employees and present a clear vision externally to both customers and partners.
In recent surveys, it was gratifying to see that customer experience and satisfaction were typically among the three or four most important success factors selected by business leaders. COVID-19 has made the customer the only thing that matters.
Where it’s feasible, enabling work from home is essential to keep employees, customers, partners and communities healthy and safe. For our customers using Microsoft 365, many of its capabilities enable work from home to be possible in a secure and compliant manner. Here are five suggestions for enabling working from home.
We recognize that every organization is asking itself a common set of questions. Having a checklist ensures that you don’t overlook some of the critical actions that will be required as your business responds to a reopened economy. We’ll continue to talk to customers and assess the successful strategies they put in place as the next few months unfold.
*Some information and data sourced from NetSuite