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UC Goering Center news

A business’s 8 step prescription for surviving the coronavirus recession

By Crystal Faulkner

Our world is at war with an invisible enemy that has brought the world economy to its knees and has left people fearful and angry at the impact it has had on our society. As a Professional EOS Implementer and CPA, I see first-hand how business leaders are reacting and responding to this situation.

We must face reality and understand that we are dealing with a crisis that is disrupting our lives, shaking the confidence of families, employees and communities, and will imperil many of our businesses. It is this moment in time that will define the future of your company. My message to my EOS clients and all business leaders is you must redirect your fearful energy to proactive and positive energy. If you are a business owner or member of a company’s leadership team, it is your responsibility to take charge of the situation in your company and move it forward even in times of crisis.

Most organizations don’t know how to prepare for an economic downturn and therefore become paralyzed. In the last recession, businesses that met their demise were often the ones who delayed critical actions. They did not assess the situation, develop a strategy or focus on the most important survival priorities. In short, denial is not an option.

Below is a prescription for surviving the coronavirus recession. Business leaders can use this process to lead their organizations in survival mode and then thrive after we win the war against the coronavirus.

1. Stay focused and disciplined

In this time of uncertainty, focus on what you can control and stay the course. If the environment changes, which often happens in times of crisis, you must adapt quickly. However, keep your eye on the target and ensure that every leader in your company is sharing the same vision. Work with your leadership team to identify the most pressing issues and work together to solve them. If you need an outside facilitator to help with problem solving, invest in one. This is a critical time when you must identify the most pressing issues at the root and generate action items that will allow your team to stay focused and execute on the priorities necessary for your company to survive.

2. Manage your cash

With the uncertain economy, it is important to prepare a cash flow forecast and plan how you could make your available cash last for at least six to nine months. If you don’t have enough cash on hand, consider how to cut expenses or increase sales by doing something different. Make contingency scenarios and cash planning a recurring topic in your leadership meetings. At all times, know how much cash you have, how much you will need, when you will need it, and where it will come from. Examine your lines of credit and ensure they will be there for you. Review possible personal shareholder cash injections. Make sure you are managing your accounts payable during this time. You may have to make choices as to which payments are made and when you must pay. Cash is the life blood of your company, so spend every dollar like it was your last.

3. Evaluate the structure of your company

In times of a declining economy, it is critical to re-evaluate your company’s organizational structure. In my EOS practice, leadership teams create an “accountability chart” which is like an organizational chart on steroids. During times of growth, the accountability chart reflects the structure the company needs to achieve in the next 18 to 24 months to generate its goals and results. However, during an economic downturn, you must make the necessary changes that will allow your company to not only survive but to thrive by embracing opportunities that may result from this time of crisis. You should create various scenarios making modifications as necessary to reflect what your company will look like if your business revenue declines. We recommend a tiered approach of 10%, 20%, 30%, 40% and 50% decline in revenue. Then decide how you will handle layoffs or other reductions in payroll costs. This exercise is not for the faint of heart but critical for survival. Conducting this exercise before you must reduce personnel will allow you to make the cuts with less emotion and take the necessary action according to the plan.

4. Revise your budgets and forecasts as necessary

Once you have identified your structure, revise your budgets and forecasts and prioritize all your expense reductions in the same tiered approach. It is important to face this head on so that you can determine if there are other areas or methods to increase sales and/or reduce costs.

5. Watch your accounts receivable with new diligence

Savvy customers will be classifying your receivables in the same way you will manage your payables, and likely will delay payments to you. Some may be on financial thin ice, and you risk full loss on receivables from them. Decide now on how much credit you will extend to each customer and develop a communication strategy for each stage.

6. Track your metrics

It is critical to run your company on metrics, not emotions. In addition to your traditional financial statements (balance sheet and income statement), consider a weekly scorecard with a set of five to 15 activity-based measurables. The scorecard should be designed as an early warning system that will forecast trouble, allowing the appropriate person to take action.

7. Hire an outsourced CFO

If you don’t have a financial expert internally, consider contracting with a financial professional to assist in implementing the financial tactics discussed above. You can’t afford not to. Understanding your financial metrics is critical to your survival and success.

8. Use this crisis as a time for innovation

Most organizations are being forced to operate differently. What have we learned in terms of being more efficient? Can we serve our clients and customers more effectively in the future by lessons learned? What have we learned about each other and our teams? If you look through history many great innovations have come during business disruptions.

Crystal Faulkner is Cincinnati market leader with MCM CPAs & Advisors. Reach Crystal at 513-768-6796 or crystal.faulkner@mcmcpa.com

Featured image at top: Photo/Andrew Jephson/Unsplash

About the Goering Center for Family & Private Business
Established in 1989, the Goering Center serves more than 400 member companies, making it North America’s largest university-based educational non-profit center for family and private businesses. The Center’s mission is to nurture and educate family and private businesses to drive a vibrant economy. Affiliation with the Carl H. Lindner College of Business at the University of Cincinnati provides access to a vast resource of business programing and expertise. Goering Center members receive real-world insights that enlighten, strengthen and prolong family and private business success. For more information on the Center, participation and membership visit goering.uc.edu.

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July 7, 2020

By Anthony C. Kure Many of us fondly look back on the 1980’s. The music, TV, movies and style are distinctly memorable. For savers and retirees, there is nostalgia for the higher interest rates. These higher rates on bonds and cash, sometimes in the double-digits, generated healthy income. Some retirees could fund all their needs with the interest income from a portfolio of all bonds. When supplemented by Social Security and even a pension, much more common then, investors were less dependent upon stocks, and as a result, less concerned about volatility. Today the notion of living off bonds alone is unrealistic for a vast majority of investors. Yields on the 10-year U.S. Treasury note are less than 1%. High-quality corporate bonds yield a little more, but not much. So retirees living off their investment portfolio need a growth engine to keep up with inflation and sustain purchasing power. That growth engine is stocks. Stocks have a long track record of outpacing bonds, but at a cost. 2020 has served as a reminder that stocks can generate gut-wrenching paper losses. Without the proper approach and mindset, these market declines sometimes lead to panicked reactions. Some simply can’t endure and decide to sell all their stocks in hopes of avoiding further pain. This reaction may provide a little better sleep in the short-term, but it also locks in permanent losses, jeopardizing the success of a retirement plan. So what can be done to avoid such a disaster?

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