A Short Guide to Proactive Small Business Planning
For more information on how to protect your business during the ‘Corona Crisis,’ please read the below letter, visit our website for more updates on the crisis, or reach out to one of our attorneys with immediate questions.
Dear Friends and Clients,
Below are a few thoughts and important tips on how to protect your business during this crisis. While I hope that you never need to heed this advice, I was thinking about it last night as I watched the news continue to unravel and thought I would share some insight.
The most important tip – “Cash is King”. While hoarding cash is not good for the economy as a whole, it is good for you personally, so do it. If you’re like me, when your client or customer calls and says “Can I pay you next month?” your response is “Of course.” You can’t do that anymore. I came into work today and told my team to start collecting. Call everyone that owes us money and get them to pay. Offer discounts, payment plans, whatever you can do to get those accounts current. If they want a payment plan, get a credit card and permission to charge the card on the dates agreed. But most importantly, get everything that you can. There is a reason that debt collectors call people incessantly, it works. Calling people that owe you money moves you up on their priority list and it gets you paid faster, because the person on the other end of the phone wants you to stop bugging them and the fastest way to do that is to pay you. If they still refuse to pay you may have to sue them. It doesn’t cost a lot to hire an attorney to sue on a collection matter. In fact, many attorneys will do it on a contingency basis; it’s worth it. If it’s a small amount, go to small claims court in your town, village or city court and do it yourself. When everyday people get served with a lawsuit, their first reaction is how can they get rid of it. It’s simple, “show me the money.”
After collecting your accounts receivable, draw down your business line of credit. Boeing announced today that they are drawing down their entire $13 Billion line of credit – they did it for a reason! If you have a line of credit that your banker convinced you to take out for a rainy day, take it. It’s raining and if the economy gets really bad, the bank will suddenly, and without warning, close your line of credit. If you take all, or some of it now, you can put it in the bank and let it sit and use it to make the payments for a few months. Most small business lines have an interest only option so at prime plus 2 points, the cost of taking that money will be minimal. If you do draw it down, don’t keep it in the same bank that lent it to you. Most line of credit agreements have a provision that allows the bank to simply pull that money back out of your account if they call the loan. The bank can’t do that if it’s in a different bank. As another option, yesterday evening, the President announced that he would be making arrangements to provide easily obtainable business loans from the Small Business Association. As soon as I obtain further details on this plan, I will share necessary steps and advice.
Pay, Don’t Pay, Slow Pay. You need to pick and choose what bills you will pay on time, what bills you can pay late and what bills can wait until after the crisis passes. Be strategic. Your secured creditors, your payroll and any bills that could adversely affect your credit rating are paid first and paid on time. Your critical suppliers and partners are next and slow pay these to the extent that you can. Whatever is left, try not to pay at all until you absolutely have to. Remember, be strategic and prioritize your bills. If you’re serious about surviving for the long haul, you need to be tough. We all want to pay our bills and not paying them is not our first choice, but tough times call for tough decisions.
Innovate –There is a reason that we work for ourselves, it’s usually because we can’t stand working for other people. Our entrepreneurship requires that we have the ability to innovate. While many of us work 60, 80 even 100 hours a week, we need to take some time to think, and to figure out a way to replace lost revenue in an economic downturn. I remember driving over the Tappan Zee bridge on my way to work in the days after Lehman Brothers filed for bankruptcy and looking at my blackberry and not having any emails and thinking to myself, “a week ago, I would have had 25 emails by now about what I had to do today.” I knew then that things were bad. That day, my then partner and I took twenty thousand dollars (a lot of money to us) recorded a radio commercial for Bankruptcy Law, went on 1010 Wins and News Radio 88 and literally started a whole new part of our practice that continues to this day. So, own the crisis, get a new slogan, marketing ploy, offer a new product, change your payment options – whatever works. Remember, people will always pay for value and your job is to convince people that your value is worth them parting with their money.
Don’t be afraid to downsize. You’re the boss, if you don’t survive, no one does. Downsizing is as important as expanding, it’s not a failure to look at your business and determine that you need to adjust staffing or contractors, it’s part of running your own business.
Finally, “Be Honest.” Be honest with your employees, your vendors, your customers and most importantly, yourself. People are much more likely to give you the room you need if you set their expectations realistically. If you can’t pay your landlord or your best vendors, tell them, don’t ignore them. The consequences will be much less drastic if people know what to expect from you.
A large part of our practice is Financial Crisis Management, we advise our clients how to structure their financial affairs when revenue and income are reduced. If you have questions, feel free to call us, early planning really is the best option. In all of my years advising my clients, I’ve learned two things: First, the longer you wait to address financial problems, the worse it gets, and: Second, bad financial times are rarely permanent. As they say, “This too Shall Pass.” Keep calm, carry on, and don’t forget to wash your hands.
235 Main Street, 6th Floor • White Plains, New York 10601
Phone (914) 946-2200 • Fax (914) 946-1300
317 S. Little Tor Road • New City, New York 10956
Phone (845) 634-6404 • Fax (845) 634-6538
Lawrence A. Garvey & Associates, P.C. |