LEADING A SMALL BUSINESS IN A RECESSION – PART I

By Robert C. Benson III, CPA, CMC, CGMA

The U.S. Small Business Administration defines a small business as those with under 500 employees.

In his book The Art of Leadership, Max Depree states, “The first task of leadership is to help define reality.” As a former business strategy and finance planer advisor for 35 years, one of my responsibilities was to help small and mid-sized companies define reality. This is always a challenge but determining how the ongoing threat of the COVID-19 pandemic combined with massive amounts of government stimulus spending and a likely recession is going to impact business planning requires creative and careful planning using different and proven strategies and tactics for such times.

The U.S. economy is a huge ship – not a speedboat. The last four decades of recessions demonstrated it generally takes substantial time to recover from significant surprise economic interruptions that disrupt business and consumer trust in future economic conditions. Another challenge that generally develops as an economy weakens is that financial markets tighten financing criteria. That leaves some companies with the burden of having to survive on earned working capital (profits) instead of traditional bank loans.

Good planning in times like this is built on sound business principles, facts, and insight, defining reality and building a plan to survive and even thrive with the conditions we have – not the conditions we hope for or wished we had. What does business as usual look like during and after COVID-19? No one knows! So, what are small and mid-sized businesses to do in these times of great uncertainty and fear? The answer will be different depending on what industry you are in. My suggestion is to hope for the best but plan carefully with the assumption that an extended recession will likely follow this chaos. The following are some proven strategies for navigating the recession.

ENCOURAGEMENT:

“But blessed is the one who trusts in the LORD, whose confidence is in Him. They will be like a tree planted by the water that sends out its roots by the stream. It does not fear when heat comes; its leaves are always green. It has no worries in a year of drought and never fails to bear fruit.” Jeremiah 17:7-8

STAY FOCUSED ON YOUR KEY COMPETITIVE STRATEGIES:

Meet with your leadership/management team and write down your Critical Success Factors – the strategies, values, corporate culture, quality and/or service standards that got you where you were before the pandemic. Keep the company focused on those factors so they don’t get lost in the fear and chaos.

The more you keep yourself, your family, and your company focused on a realistic plan to survive and/or eventually thrive, the better you will feel and be focused. That produces better results as your soul is encouraged and restored from the shock of all this.

SPECIAL CASH MANAGEMENT STRATEGIES AT THIS TIME:

Follow the principle that “cash is king” and preserve as much of it as possible so you can keep key personnel and work smart. There will likely be more U.S. funds allocated for the Payroll Protection Program. So, if you haven’t applied yet, do it immediately!

1. For information on the SBA Paycheck Protection Program go to https://www.sba.gov/funding-programs/loans/coronavirus-relief-options

• Click on Learn More and read about the program.
• Go to your own bank first.
• If that doesn’t work, click on Find a Lender > Enter your Zip Code to find a bank.
• Don’t send in an application that is not complete!
• Consider calling your CPA if you need assistance with the paperwork.

2. Check into information on the COVID-19 tax credit when it is released.

3. Be conservative with your cash and line of credit.

• Unless you are cash-rich, preserve all the cash you can, as long as you can.
• Ask for a 90-day suspension from all creditors except essential supplies you need to service your customers.
• Negotiate an additional 30-60 days payment terms from those essential suppliers.

If you are the owner(s) and can afford to, stop paying yourself for a while or pay yourself less. That will help you keep key employees and working capital to stay in business, and/or work smarter than your competitors.

1. Ask for a 90-day suspension of all bank loans, leases, mortgages and other forms of long-term obligations.
2. If you are under-capitalized or thinly capitalized, you may want to also apply for an SBA term loan at your bank during or after the eight weeks of the COVID-19 Payroll Protection Program loan.
3. If you are in an Enterprise Zone, check to see what programs they might have available.

FINANCE AND SURVIVAL STRATEGIES:

In order to survive in a recession, it is very important to apply sound principles in the financial management and structure of the business. Here are some key strategies you can apply.

Continuing to follow the principle that “cash is king” and preserve as much of it as possible so you can keep key personnel and work smart.

Meet with your key personnel and develop an action plan in a simple outline form to accomplish the following:

1. Prepare a comprehensive projection of your profits, cash flow, and capital requirements to anticipate your financial needs and strategies in advance.
2. Re-engineer your pricing, cost and margin structure to lower your break-even. Be careful not to cut more value than cost.
3. Develop good cost of goods or job cost records to assure appropriate pricing.
4. Make sure you have current and accurate financial statements and management reports to help make sound and timely business decisions.
5. In the event the recession runs longer than expected, try to refinance your debt while the company is still financially strong!
6. Use sound cash-flow management along with your profit management.
7. Offer cash discounts to accelerate cash flow and provide liquidity.
8. Last, but certainly not least, as is written, “So in everything, do to others what you would have them do to you” Matthew 7:12. Or, if you prefer, “What goes around comes around.” I recommend this very important intangible teaching that has a way of becoming tangible. It is essential for all of us to continue to do what we can to support our church, para-church, humanitarian and emergency relief organizations as we feel lead to. People who follow this principle find they are rewarded for demonstrating their love for others in this way.

PRAY FOR WISDOM, KNOWLEDGE & UNDERSTANDING

“Trust in the Lord with all your heart, And lean not on your own understanding; In all your ways acknowledge Him, And He shall direct your paths.” Proverbs” 3:5-6 NKJV.

If you have feedback or questions for Bob or topics you would like him to write on, go to the website address below and click on CONTACT.

Robert C. Benson III (Bob) is the co-founder in 1984 and Past President of American Business Advisors, Inc., a full-service business and management consulting firm specializing exclusively in the unique opportunities and issues faced by small and mid-sized companies. While there he was a Business Strategic and Finance Advisors to hundreds of companies for 35 years

He successfully founded or co-founded seven businesses, including being a co-founder and former President of SecurCare Self Storage, Inc., now National Storage Affiliates (NSA), the 4th largest self-storage company in America. Bob is also the founder and former Managing Partner of Benson Wells & Co, now Corne Jantz and Associates.

Bob’s credentials include being a CPA*, Certified Management Consultant and Chartered Global Management Accountant. He is also the author of STAND FIRM WITH GOD’S POWER IN BUSINESS and numerous business articles.

© Robert C. Benson III – All Rights Reserved

Several parts of this article have been taken from the Managing a Business in a Recession article Bob authored in 2001 while President of American Business Advisors, Inc. and special recognition is given to them for the use of that material.

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TM by Robert C. Benson III