This is an uncertain time for business owners.
Difficult questions like deciding whether to pause operations, continue a lease, apply for a loan, or lay off employees, are on the minds of business owners across the country. Many are confused about their tax obligations in the face of new legislation. Most are worried about maintaining proper security and managing communications effectively with a larger percentage of their employees working remotely. Some are concerned about how they will repair the brand damage that is occurring as a result of not being able to fulfill their brand promise to their customers.
Frequently shifting state and local regulations have left the waters murky for many businesses, especially in highly seasonal industries. Some business owners may be wrestling with the question of whether their businesses will be able to reopen at all after the shelter in place orders and social distancing recommendations have been lifted.
As they navigate these unprecedented challenges, they will have to prioritize the actions they take to triage the health of their businesses. While there is no universal “secret solution” one thing is certain – business that do not focus on these eight items right now will find their businesses worse for the wear afterwards than if they had prioritized these key areas:
Most importantly, businesses must protect and manage cash. And aggressively work to improve their working capital. Proactively prepare and manage rolling cash flow projections for the next 3-6 months. Pare down budgets and defer PPE (property, plant, and equipment) expenses where possible.
Adapt existing systems for electronic invoicing and receivable collections to ensure that payments are received quickly, and accurate information is maintained to aid in collections efforts. Actively manage your collections to receive outstanding payments sooner and reduce the amount of bad debt that needs to be written off for uncollectable accounts.
Beyond managing cash flow, ensure that the business has enough liquidity to manage its obligations. This is the working capital focus referenced earlier. This liquidity is vital because right now no one knows how long the recovery period will take. Furthermore, banks and investors will want to see healthy liquidity figures when issuing loans or extending financing options. If there is a chance that the business will be sold in the coming year, proving your businesses liquidity will be a crucial component to preparing it for sale as well.
If your business has been substantially affected, contact your insurance company to find out if you have, and the current situation qualifies for, business interruption insurance. While insurance company responses will vary based on state, policy type, and level of need, starting the conversation opens the door to finding out what is available to help your business recover.
As a tenant, review lease documents to understand your payment obligations and protection rights, especially those related to:
- Force majeure
- Timing of rent payments and cure periods
- Co-tenancy provisions
- Landlord obligations
In some instances, rent reduction, temporary rent relief, or lease termination may be possible.
Business owners should utilize bargaining power to find an advantageous solution. Landlords will most likely be under distress too, and prudent landlords will seek to retain occupancy even at the cost of rent reductions, shorter lease terms, or other concessions. Most will understand that some rent is better than no rent and are going to be more likely to work with businesses to maintain their own revenue streams. In all circumstances, recognize your landlord is a business owner as well. They’ll respond better to a dialogue around this topic, rather than an ultimatum.
As a borrower, reach out to your bank and see if there is something they can do in the short-term to extend credit or increase existing credit lines. Additional credit will be instrumental if it is needed now, or later. Determine if covenants can be changed or altered given the current economic environment as well. Business owners should engage their banks in open dialogue to look for ways to work together. Ask the right questions to understand which levers can be implemented while still maintaining the relationship. Some banks will be more likely to offer ideas on how to work with businesses, but all will appreciate being included in the discussion.
Federal, State, and Local Tax Obligations
The recently passed CARES Act has numerous tax benefits for businesses, including deferred payroll tax payments, net operating loss carrybacks, employee retention credits, 163(j) limit increases, retroactive qualified improvement property (QIP) allowances, accelerated recovery of alternative to minimum tax (AMT), increased charitable contribution limits, and the suspension of excess business loss (EBL) rules.
Washington and Oregon have also released separate state tax relief options for businesses. These include, among other things, extended deadlines on corporate income tax and corporate activity tax filings.
Business owners must understand their obligations clearly. Knowing what it takes to meet payroll and what kinds of incentives are available to help bear the cost is instrumental in determining whether headcount needs to be reduced. The CARES Act stimulus bill includes a bevy of options to aid businesses facing these questions.
If the business does not qualify for relief, it may be in the best interest of both the organization and the individuals to lay off or furlough employees, at least for now. Reducing headcount gives employees access to unemployment benefits while helping to preserve the health of the company. In some cases, making these difficult decisions will enable to the business to rehire employees once economic conditions improve. The right answer in this scenario will be unique to each organization.
With more employees working from home, where there are weaker security measures, phishing scams are on the rise. Businesses should alert employees to beware of clicking on links or downloading content and urge them to report any concerns they have immediately. Lay the right foundations to minimize vulnerability and protect the organization against actions by employees that could pose serious security risks.
The time to communicate is now. Businesses need to have ongoing discussions with major stakeholders – owners, investors, management, employees, key vendors, banks, and professional advisors. Keep everyone informed and as up to date as possible. Communicate changes, needs, and other important updates to share information quickly. Lean on the company blog, email lists, and secure internal communication platforms to disperse real-time information.
About the Author
Kevin Briscoe is the Executive Manager for CFO Selections. He is responsible for establishing and implementing goals and strategies for the firm. His professional career spans nearly 30 years in finance, accounting, and operations in publicly traded corporate and small, closely held settings.
Kevin excels in financial analyses and accounting operations, implementing internal controls, and creating and implementing organizational systems. He has held ownership and management positions, demonstrating an outstanding ability to provide effective leadership in increasing profitable growth throughout his career.