by Jim Brown

April 2, 2020

Insights and perspectives from a small business CFO

It goes without saying that this a difficult and confusing time for everyone, including (and maybe especially) for those of us who are charged with managing the financials of a small business. On a personal level, we’re worried about our own families. But we also worry about the “work family” we have built, and we want to do everything in our power to keep the business afloat. Whether you’re a farmer, a local grocery store owner, a restauranteur, a manufacturer, or a leader in a small communications and marketing firm like ours, times like these show how vulnerable we can be.

As a small business CFO, my experience has been that there are 4 phases you will likely go through during times like these, which was confirmed during a call I participated in this week with some of our global partners:

  1. Emotional Phase – It may take a week or longer, but at a given point, it hits you that you and your business could be at risk. With the novel coronavirus (COVID-19) pandemic, the emotions built over a couple of weeks, and as states started initiating stay-at-home orders, it all became very real. Clients, co-workers, peers, media outlets and family members started to become very concerned about the uncertainty, and at that point, our minds were racing to try and digest what it all meant.
  2. Understanding Phase – During this phase, we start to wrap our brains around the situation at hand. We digest as much information about the situation as we can and what it will mean for clients, staff and our business. Since a lot of the initial emotions have passed during Phase 1, our decision-making and thinking process has become more grounded, and our business instincts have started to kick in. A word of advice here: you can use the media to gather information to assess and understand the situation but be sure to apply your own critical thinking to determine how it will affect your business. No one understands your business better than you do. If you don’t trust your gut, you may be led down a path that focuses on problems without solutions.
  3. Refocus PhaseAs a business owner or CFO, this is where your leadership is needed most, both for your business and your people. At this point, a lot of the uncertainty has settled in and now is the time to determine a plan forward. There are a few critical areas to look at now:
    • Build Cash Projections Determine your current cash position by updating or creating your cash flow models. Create a few scenarios based on varying revenue assumptions that go out 12 to 24 months. Build it so that it can be adjusted easily, and don’t forget to include any borrowing capacity that you can rely on at this point. For example, we built three different scenarios to understand what the business might look like at various revenue forecasts and developed a strategy around those projections.
    • Revenue Review – Whatever form your revenue comes in, it will be important to try to understand how it’s being affected by the current situation. We did this by engaging the account team leaders on our top 50 accounts and asked each one to answer four key questions, including things like whether a client’s business was normal, disrupted or expanded, and what outstanding factors might impact a client’s business. Once you have a sense of where you believe revenues will settle, apply them to the cash model.
    • Expense and Other Reviews Take a step back and really look at all discretionary spending and cut out all non-essential items. Review compensation-related benefits and look at staffing adjustments that might need to be made if expense cuts are required to keep the business alive.  Review your payment terms on payables and stay on top of cash collections. Review other large cash items, such as rent or mortgage commitments, and extend payment terms if possible. And, look for opportunities to take advantage of state and federal Small Business Administration programs. For example, the recent CARES Act has a few options that are promising and will provide some relief to small businesses.  Once that work is complete, develop a list of expense initiatives you can implement if needed and apply them to the cash models.
  1. Implement, Monitor and Communicate PhaseOnce you’ve gone through those phases, you are well positioned to outline the path forward and implement it. You’ve identified the action items needed in order stay viable, depending on different revenue levels. Now is the time to monitor the situation closely and be ready to quickly adjust. If revenue trends go lower (for example, you lose a client unexpectedly), you may have to initiate more of the expense savings items you identified earlier. My biggest piece of advice here is to be proactive and flexible – making decisions now compared to two weeks or a month from now can have a meaningful impact on your business’ ability to weather this storm. Also, don’t forget to stay communicative with your staff. It’s important for them to understand you have a plan and are doing everything you can to keep the business strong and their jobs secure.

As a point of reference, we are currently in Phases 3 and 4 and will be so for some time until the world settles down and everyone works to adjust to this new normal.

Every business is different in its ability to manage through a period like this. Some may have cash flexibility, and some may have to make tough decisions now in order to stay in business. Whether this is the first time you’re working through a period like this or you’ve (unfortunately) gone through something like this before, methodically following this process will help you identify a game plan to ensure the continued existence of your business. Although the year may not turn out to be your best in terms performance metrics, I can assure you it will be one in which you grow and learn the most.

Want to talk? I’d be happy to be a sounding board. We’re all in this together. Shoot me an email and let’s chat.