Navigating the Business Impacts & Risks of COVID-19

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COVID-19 Business Survival Webinar Recap

Legislation enacted in response to COVID-19 is unprecedented in scope and size and is being passed quickly to ensure that relief is available to those who need it. Questions about how to apply for funding, what is available, and to whom are just some of the questions that arise. We’re in the midst of business survival right now.

Adams Brown is closely following state and federal developments and is holding weekly webinars to help answer our clients’ questions on COVID-19 relief. The first in our series of webinars focused on new federal mandates for paid and sick leave as well as typical disaster assistance available during a crisis. The webinar was a moderated discussion featuring several partners, principals, and senior staff. We’ll leave out any information that’s out of date by the time the blog is published – these changes happen almost daily sometimes – and what follows is an overview of the most important takeaways.

Our first webinar, held on March 27, 2020, featured:

SWOT Analysis in a COVID-19 Environment: Arlen Hamilton

Following the Families First Coronavirus Response Act, there are many new options to pursue for business and personal financial help. But some things remain the same during a crisis, as Arlen reminded webinar participants. He explained that in the normal course of working with clients, he helps them complete a SWOT analysis to identify short-term threats in the current environment. The goal is to make sure that the following threats are clearly identified:

  • Financing – cash flow is king. In a COVID-19 environment, that means expanding line of credit, restructuring debt, and making payment deferrals when possible.
  • Operations – know the burn rate, cut expenses, and look at payroll for options to furlough or reduce salaries, for example.
  • Vendors – talk to them and cancel orders that aren’t yet delivered or immediately essential, capitalize on discounts, and/or negotiate longer terms.

The biggest thing with vendors is to make sure there is a backup, especially for essential products or services. It’s also important to check inventory levels. Are they at the right levels for today’s environment? Regarding lease and rental rates: negotiate a pause or reduction in lease or rental agreement with the landlord. This is happening across the nation. These things are hard to consider but necessary decisions.

In looking at sales: what is the horizon? Demand forecast? Is the downturn for 40, 60, 90 days? The goal is to preserve customers, so communicate frequently. Don’t make them wonder what’s going on. Shift focus if needed. Where are the holes in the market and how can the business fit those holes and adjust to current or future demands? Remember that there is an opportunity for a silver lining in every storm. 

When it comes to risk management and IT, as more people work remotely, the system is stressed. Make sure there is a disaster plan for virtual events that also address cybersecurity concerns. Reputation is another risk management situation. The community expects you to respond. Do it appropriately. Compliance is another risk management issue. Many deadlines are still in place while others have moved. Don’t make it worse by getting behind in filing. Stay current.

Remember that your competitors are still looking for market share – and could be looking for your people, too. Make sure you are also watching out for your business and how you react to this situation.

Finally, focus on asset preservation, especially if the business is closed. Hire security, have cameras installed, and consider what needs to happen to ensure the business stays intact.

Cash Flow Management: James Bailey

Every small business is facing liquidity issues and time is of the essence. What strategies should business owners implement today to impact cash flow? James, who works with Adams Brown’s restaurant clients, advised webinar participants not to panic, but instead plan.

The first plan of action is to assess the financial situation. First, review financials. On the balance sheet, look at unutilized assets within the business, deposits that aren’t on the books, and recouping methods. After analyzing where the business is at today, then start looking at budgets put into effect in December.

Many businesses are changing budgets with reductions in revenue as well as looking at the breakeven point to keep the business open. Doing one budget isn’t enough. Various revenue level budgets are best, because we don’t know the long-term effects within the business. Once that financial forecast is ready, business owners can start to do some cash flow forecasting.

Businesses need to preserve cash right now. There is a lot of uncertainty over the length of time we’re going through this. Review accounts receivable, look for customers the business can collect on now and vendors that will permit delayed payments.

If there is a cash flow forecast up to 3, 6, or 12 months, then the expected timeline of when the business will run out of money is identifiable.  Then owners can look at when bridge loans and lines of credit are needed, and how much.

Above all, it’s important to assess the financial situation before acting. The decisions made now will have consequences; for example, laying off employees. Has there been an analysis of vacation, PTO, and sick pay that needs paid out upon termination? That can be missed in financial analysis.

Finally, review what you can do to safeguard assets so one crisis doesn’t lead to another. Communicate with insurance providers to ensure there is business interruption service on the policies.

And next, communication. There are three main types of relationships where conversations should be prioritized. They include:

  • Customers
  • Suppliers (and the Landlord)
  • Employees

It’s important to have communications with employees. Budget realities will force layoffs in many scenarios. Handle these with compassion. The reality is the layoffs are about the employee going through those individual hardships. Be direct and honest.

Next, talk to the business’s CPA and legal representative. As tax credits roll out and decisions on handling labor force are made, these professionals can help take advantage of available tax credits.

The worst thing you can do is nothing. Accept your financial situation, come up with a plan and communicate to all the stakeholders.

Labor Decisions: Jess Camp

Many workplaces are considering workforce reductions to preserve cash. Business owners must understand the difference between two scenarios, in part because the difference determines the business’s eligibility for certain financial relief measures.

  • Furlough: an extension of employment. Stays on books. Reduced work week or no hours.
  • Layoffs: termination of employment. Vastly different from furlough.
  • Reduced work week: a blend of both approaches; employee is still eligible for unemployment.

Furlough versus layoff has an impact on the employee’s eligibility for benefits in the Families First Coronavirus Response Act. If an employee’s hours are reduced enough, they may be eligible for unemployment benefits.

Regarding benefits eligibility, look at the plan document to understand what hours per week are required. Has the carrier put temporary provisions in place? A few carriers are reducing or taking away the hours per week requirement so individuals can keep benefits.

When it comes to layoffs, it’s ending employment so there will be a COBRA event that comes with required notices and forms. There may be paid time off obligations to pay off vacation balances with a layoff, whereas with a furlough, employees can keep that balance intact. There are notice requirements, too. A full layoff is reported to the state.

There are also emotional ramifications of both decisions. A furlough could be an option if the business can ride the storm and allow employees to stay on. It helps them get back on their feet sooner. With a layoff, there are emotions with a person’s employment being terminated. What works today and how it may affect the business and employee in 30 or 60 days or 6 months can be different, so analyze both options clearly first.

Another option is a shared work program where an employer can reduce hours among a specific group of employees instead of layoffs. Employees can receive a portion of unemployment benefits. It’s an option to hang onto valuable employees but not pay 40 hours per week.

If a business implements layoffs or reduces hours enough to affect eligibility for insurance, be aware of notice requirements for COBRA and other forms. Also remember that all plans are required to provide coverage for COVID-19 testing and all associated costs, without costs to employees. Talk with the benefits broker or carrier directly to ensure coverage is in place. Also ask if telemedicine provisions are in place. If there isn’t already an employee assistance program, it might be something to think about.

The role of mental health and how that affects families cannot be understated. Remember that compassion and communication are key.

For more information about unemployment benefits for Kansas workers, click here. If you can’t pay your employees, click here.

Shifting Strategies: Michelle Ryan

Looking ahead, how should businesses position themselves for success in the future? As everything is changing quickly, business owners should be asking themselves what is relevant today and what needs to be explored in the short-term. Think about how business planning for disruptions in the future will work. Above all, focus on short-term to mid-term strategy.

Business owners wear a lot of hats and may need to come out of the micro focus and look at the bigger picture right now. Out of great disruption comes great opportunity.

Some mid-term strategies include:

  • Creating permanent solutions with long-term potential out of short-term need. For example, a work from home policy. As businesses are going completely virtual all at once, maybe there isn’t as much of a need for real estate in the future.
  • Protect current market share but look for holes in the market. Are there gaps that exist in the normal space? Are there new offerings that the market wasn’t ready for before?
    • Also, make sure to look at the discontinuation of product or service lines that don’t have long-term potential.

The future state is not the same as our current state. Right now, businesses need to leverage technology and see the gaps in the risk landscape. Has this exposed some weaknesses in business? If the business was concentrated too much on certain suppliers or customers, that makes it harder to weather certain storms.

From an emotional landscape, remember that this is an opportunity, not a crisis. It’s a once in a lifetime event. Don’t get caught up in the panic. Make a list of the things to take away from this learning experience and act. Don’t sit back and wait. Use the opportunity to be proactive and position for profitable growth.

Resources

For more information on tax relief for individual and business taxpayers under COVID-19, click here.

For more information on resources for your business and how to survive financially, click here.

Finally, bookmark our Coronavirus Resource Center for up-to-date articles and useful links to help answer your questions quicker.

The professionals at Adams Brown are here to help. We know this is confusing, scary, and may seem impossible at times. But we’re here to help. You can always rely on us to give you updated information and realistic answers to guide you toward the best strategy for your business and family finances.  For more information, please contact us.