Game Planning to Navigate Covid-19 Crisis
By Matt Christensen, Senior Vice President, Business Capital
At Business Capital (BizCap®), we routinely speak with members of senior management at pivotal times. Acquisitions, turnarounds and hyper growth are scenarios we encounter in the normal course. The COVID-19 impact has placed everyone in uncharted waters. Our conversations have shifted to consequences of “Shelter In Place” and its impact on business. Obviously, impacts vary radically by industry. The experience of hospitality and travel are radically different than canned goods manufacturers or home delivery businesses.
Even with the diversity of experiences, we believe there are some common actions that management teams should seriously consider.
There is a new sheriff in town. His name is Corona.
1. Establish a COVID-19 Impact Team. We face uncertainty and surprises. This statement is obvious, overused and not very helpful. Prepare for the “fog of war.” Companies need to create a Covid-19 focused triage team where issues, never before seen, can be prioritized and addressed. Identify people within your company whose job responsibility during this pandemic will include being a “COVID-19 Impact Team member.”
Announce the Team to your company as a place to download issues. This, by itself, will provide relief to your personnel. The Team should be open to accepting information from all levels of the business, from the most senior to junior. This team will need to detect, access and address everything from employee health to the loss of a major customer or supplier. This team is your radar, triage unit and SWAT team. Frankly, we could probably write an article on just this topic. Seriously, consider how to staff this team. HR will need representation, as well as finance and, probably your CEO. Decisions and actions will have to be taken quickly; but implications of these actions will have to take the entire organization into consideration not just the constituency immediately impacted.
2. Develop Cash Strategy Adapted to a “New Normal.” Fresh rules are being written in real time on managing cash. Previous recessions have hit gradually and with far less impact. Unprecedented developments are shaping the way institutions are working with each other. Eligible borrowing base criteria are formally and informally being re-written; so are loan agreements. Terms of customer and supplier agreements may have to be modified in unprecedented ways, at least for the interim period. Tenants and landlords will be having very unusual conversations across the country. Unfortunately, this must be an area of thoughtful concentration.
Certain aspects of conventional wisdom still have merit. Familiarize (or re-familiarize) yourself with the rolling 13-week forecast. “Cash is king” has never been truer. Dump your annual budgets (for now). Time to get very short term oriented and cash minded. Exacerbating the issue; returns and bad debt will probably go up. Consider stopping all auto payments, expect an increase in slow payers, don’t assume credit worthiness because of past experience, if possible – create a cash reserve (there will be surprises), confirm with critical suppliers and renegotiate supplier terms if possible.
3. Consider Consulting Turnaround Professionals. Much of the nation will have to take a crash course in turnaround strategies to deal with the economic upheaval. At BizCap, we’ve been talking with clients to assess their runway, exposure and collaborating on financial and operational triage. For the past 10 years, the United States has had the wind at our back. The same management team (or for that matter mindset) that was superb 3 months ago may be completely ill prepared for today’s environment. There is a new sheriff in town. His name is Corona. This is the time for owners to seek out, and listen to, turnaround professionals or, in other words, a wartime consigliere. Cost minimalization, layoffs, furloughs and shortened work weeks will be normal phenomenon in these abnormal times. For most companies in America, your playbook will have to be re-written and tactics overhauled. Learning on the job is a sub-optimal solution.
4. Make Securing Capital a Science. For many companies, getting money has been like navigating in a house of mirrors. There are fundamental realities that have created this environment. Banks are prioritizing Payroll Protection Program (PPP) loans (some more successfully than others), answering clients’ calls, negotiating relief packages, and following crisis inspired directives from senior management. Nonregulated entities are typically in a far better situation but, they may be facing substantial portfolio, and even funding, issues. In this fluid economy, a skilled advisor, like BizCap, can diagnose the situation and the market, prescribe a surgical approach to get the client off life-support and better positioned for a capital infusion.
5. Have a Double – Dip Strategy. There is a great deal of political pressure to open our economy and thereby run the risk of a second Corona wave. We are not going to make value judgements; but we do think the possibility of a double dip is very real. Unfortunately, but realistically, have your “Shelter In Place” playbook handy – you may need it again.
6. Maintain Rhythm & Urgency. Let’s face it, working from home is great. You’ve got your TV, refrigerator and that fantastic book you never had time to read. More than that, these are unsettled times, “I deserve a break!” These thoughts are natural, easy to accommodate and the last thing many companies can afford.
The need for virtual and remote working capabilities is obvious, and thankfully, our tech friends have given us a myriad of options to accomplish this. The hidden challenge is keeping your team focused, motivated and knocking out the tasks at hand. We do not like being the bearer of bad news, but meetings, project management and the dreaded timelines are now more important than ever – sorry. Be sensitive to personal issues, but otherwise maintain accountability and set routines that keep you connected.
7. Look for New Avenues of Success. In your spare time, look for new ways to use your assets. As a result of this disaster, the world has new needs. We have seen a pillow manufacturer convert 100% of their production to PPE production. We have seen auto parts manufacturers convert production to ventilators. Survival of the fittest may be a test in versatility rather than endurance.
8. Buy, or Merge, with a Competitor. This type of aggressive move may seem counter to many of the previous themes – it is. BizCap is currently working with several companies doing just this. There are sources of capital that have been just waiting for times like these. If you have a sustainable platform, but have hit the Corona “air-pocket,” oddly enough, this may present a unique opportunity. Weaker competitors may be vulnerable or buried in the fire drill of the moment (all day – every day). They may not have a Corona Impact Team! Look for the exceptional opportunity.
9. Remember lessons of previous recessions: Weaker competitors will disrupt markets and lower margins. Some advice – don’t squander a great brand in blind pursuit of lower costs, focus on liquidity versus profitability, drive for urgency on all working capital assets, buy your significant other flowers, and don’t watch TV during dinner with your family.
10. This unprecedented period will pass. Our ideas on short term thinking apply, for the most part, to cashflow. Hard decisions will have to be made, but reputations are built or broken in extraordinary times like these. This pandemic will pass, and it will pass relatively quickly. Make your hard decisions for the right reasons. Reputations, your personal brand and your company’s standing in the business community will be shaped today but will make lasting impressions.
Hang in there and use the challenges of this crisis as opportunity. It’s possible that your business could actually emerge leaner, stronger and better positioned for future success.