This email was sent to business owners in our area on March 17, 2020. It was based on the advice we had been giving to our clients over the previous weeks.
No one knows how long this health crisis and its economic aftermath will last. The speed and scale of these developments is like nothing we’ve ever seen before. The speed and scale of your business response should be commensurate.
Venture 7 Advisors works with business owners to build, protect and harvest business value. Here are some of the business survival recommendations we have been making to our clients in the past few weeks.
Stockpile cash.
Detailed cash flow planning is critical. We suggest using a detailed, rolling 13 week cash flow plan to monitor and protect cash.
If you have unused capacity on your bank line of credit, use it now before the banks feel pressure to reduce their credit exposure. Increasing your short-term interest expense is better than running out of cash. Make sure to review your loan covenants as part of this process.
Find ways to reel in Accounts Receivable through more aggressive collection actions and/or discounts for early payment. (e.g. collect cash from customers while they still have some).
Tighten or suspend credit terms.
Reduce inventory through discounts and product returns, where possible.
Slow payments to vendors where you can.
Identify and prioritize potential asset liquidations should it become necessary.
Reduce expenses aggressively.
This is not the time to be timid. Reduce variable costs quickly. Suspend raw material shipments (see Force Majeure below) and reduce direct labor. If you have under performing or expensive employees, this may be the time to let them go.
Adjust overhead costs now to match lower revenue expectations.
Can you keep a core team together through shared sacrifice (e.g. across-the-board pay cuts, a 4-day work week, etc)?
Force Majeure is here!
The fine print on virtually every contract allows the terms to be altered or voided when forces beyond your control (Force Majeure) disrupt business. If you have customer or vendor contracts that you’d like to change, double check the contract language and see if this crisis gives you the escape you need.
Conversely, your partners may want to change contracts that you like. You can expect to hear from them soon. Have a plan for dealing with it.
Who’s going to help me?
It's time to read the fine print on your business interruption insurance and figure out how to maximize your claim if it comes to that.
There’s a lot of talk about government bailouts. Monitor the plans, document the business changes you make that are due to the crisis, but don’t bet your business on a rescue. Figure out how to survive on your own.
There is opportunity in recovery.
Think about how you can capitalize on the changes that are likely to come. In the short-term, we’ll probably see record low interest rates and economic stimulus spending. Beyond that, changes in healthcare delivery, distance learning and dining and shopping habits are likely. How will you adapt your business model these and other changes?
Every business is different and there are undoubtedly more specific strategies for your situation. If you have questions or if you’d like to talk, please don’t hesitate to call.
Good health and best of luck,
Bryan Ducharme
Larry Chernicoff
Scott Hardy
About Venture 7 Advisors
Venture 7 Advisors was built from the ground up to help business owners grow and successfully exit their companies. We think like business owners because we are business owners. We offer practical business advice here on our website, through public speaking engagements and through professional publishers and development centers such as CFO.University. We encourage business owners to contact us for a free brainstorming session: no sales pitch, just business ideas and support from experienced business owners like you. Contact Venture 7 at 802-489-7700.