Protect Your Business Finances from the Coronavirus Pandemic

As I write this, conditions are changing quickly and dramatically due to the coronavirus pandemic. This article presents strategies for glass company owners to handle this situation and limit the financial damage to their business. The article includes four main areas on which owners should concentrate. The key to the action plan should be to act (and react) calmly and deliberately.

Note: This article does not discuss how to handle employee issues and the associated financial implications. That topic is subject to numerous laws that are best discussed by someone with human resources and legal experience.

Step 1: Educate yourself

The media is filled with articles, talk shows and interviews about the pandemic and its effects. Unfortunately, most of these are superfluous. Few have any new or useful information. However, they somehow dominate our attention. Obviously, the pandemic concerns me. I am equally concerned about how people and businesses are reacting to it. This reaction only magnifies the business effects of the virus itself. 

Business owners should keep well informed but should not over-expose themselves to news or social media speculation. It won’t help. Instead, owners should increase the time spent studying their business in detail. They should examine supply chains, cash flow, processes, competitors and clients in detail. They should use this information to forecast how different events could affect each of these factors and determine response to those effects.

Step 2: Improve your financial position

Improving a company’s financial position is key. It allows the company to absorb financial shocks while limiting their impact on business. To do this:

• Establish a cash reserve
  Cash reserves are a critical resource for companies. They protect a company by providing room to maneuver around difficult circumstances. If a company has a cash reserve, owners should not use it unless they really need to. It's too valuable. If the reserve is low, or nonexistent, work on it immediately to get it in shape. If the reserve is not sufficient, consider complementing it with financing. Possible options include lines of credit, asset-based financing or receivables financing.
   
• Examine expenses
  Owners should review business expenses in detail. They should look for expenses that can be reduced, postponed or eliminated. Begin working on those expenses immediately. Be careful about cutting too deep or into strategic areas that could affect core business.
   
• Tighten credit and manage receivables collection
  Recessions always bring clients who pay their invoices late, or worse, clients who don't pay at all. These clients take up resources and affect finances.
  
  Take a defensive position immediately. If an owner waits until clients default on payments, it will be too late. Companies should run commercial credit reports on all GC and commercial clients. These reports give a good idea of their financial strength.
  
  Provide 30-day sale terms only to clients that meet credit criteria. Clients that don't meet criteria should be asked for an upfront payment. Every time a company makes an exception to this rule, they risk nonpayment.
  
  Monitor accounts receivable collections processes. Accounts receivable provide the funds a business needs to operate. Avoid unnecessary delays by closely following all clients’ payment procedures. Lastly, follow up regularly with clients that are late to ensure payments are on their way.
   
• Manage and adjust inventory
  Managing inventory during normal times is complex. The current situation only makes planning exponentially more difficult. Having too much unused inventory is damaging. It reduces cash at a time when it is needed the most. The opposite situation is a threat to business as well. Not having enough inventory results in delays, unhappy clients and missed sale opportunities.
  
  Inventory management has become more complex because owners have to consider the supply chain problems that can occur during a pandemic. I will cover this point in more detail in Step 3.
  
  Owners should work with an expert if they can. At a minimum, they should examine current inventory levels, forecast the next quarter or two of sales, and factor in potential supply chain disruptions.
   
• Consider refinancing expensive loans
  During the past few years, we have seen a dramatic increase in the number of companies that get expensive loans. These loans, also called “cash advances,” compensate for their expense by being easy to get. Even during good times, these loans can be difficult to manage. They will get more difficult to handle as conditions worsen.
  
  If a company has expensive financing, owners should determine if refinancing is the right choice for the company. Replacing expensive loans with well-structured market-priced SBA-backed loans (or bank loans) will reduce monthly costs. Consequently, the financial position improves along with cash flow.
  
  Deciding to refinance a loan is a complex decision with many ramifications. An owner must ensure the new loan leaves the company better off. Unless a company has an experienced finance department, owners should work with a CPA or similar professional. Although their fee may not be cheap, it is much less expensive than making the wrong choice.

Step 3: Watch suppliers carefully

Recessions often bring logistics and supply chain issues. This pandemic is magnifying these problems. We have numerous clients in the transportation and logistics industries who are reporting problems in their business. The most-reported problems include delayed ships, canceled ships, canceled orders and empty trucks. These problems appear widespread, as colleagues in other companies are reporting the same issues. I suspect these problems will begin to filter down once existing supplies are depleted.

Will an owner’s suppliers encounter critical shortages? If they do, these problems will likely cascade all the way down. Consequently, owners need to perform due diligence on suppliers. This effort will take some detective work. Owners can take the following steps:

• Run regular credit reports on key suppliers
  These reports provide valuable information about suppliers’ financial health. Information about their own supplier payment habits is very useful. Suppliers who are financially weak may not be able to withstand supply chain issues.

• Speak to representatives from the company
  They are a great source of information. One thing I learned in my front-line days in the finance industry evaluating companies is that you have a better chance of getting useful information by asking “loaded” questions that are open-ended. For example, ask, “How are you managing all the supply issues arising from the pandemic?” Or ask, “How are your suppliers dealing with their late shipments from Asia?” 
   
• Do your research
  Search the internet for relevant company and industry news. However, trust information only from reliable verified sources.

Step 4: Don't stop marketing and sales activities

Companies reactively lower their marketing and sales investments during difficult times. Predictably, that leads to lower sales and increased financial problems. It can be a vicious cycle.

Remember that businesses can grow even in the worst times. I know companies in the construction industry that survived and grew during the recession of 2007 to 2009. It's not easy, but it is possible.

Owners should invest marketing and sales dollars selectively. Develop multiple potential marketing strategies. Test each strategy for effectiveness and quickly discard those that don't work. Lastly, many sales in the glass industry are relationship-based. The catch is that they take time and effort to develop. Spend the resources to develop these relationships. These investments will eventually pay off.