By Andrew Connors
The emergence of the new coronavirus pandemic has impacted business owners in an unprecedented way. Many businesses have had to either significantly reduce or alter their operations, or temporarily close. If you are a business owner, what can you do to keep your business afloat and wealth plan on track through these turbulent times?
1. COMMUNICATE TRANSPARENTLY
There are many reasons to be open about the business issues you are facing. To begin with, everyone is confronting this crisis together and your customers, employees, suppliers and investors can empathize with your challenges. Transparency puts you in control of your narrative, allowing you to describe the steps you are taking to mitigate risk and giving your constituents insight into your plans for moving forward. According to a Harvard Business Review report, operational transparency can also lead to greater customer satisfaction. It found that customers appreciate a business’ service and value more when they see what’s going on behind the scenes. And operational transparency can make employees feel their work is more meaningful. Finally, transparency can help you run your business more effectively. An honest conversation with the people you do business with can help you implement protocols to stay above the red until you can get back to business as usual.
2. MANAGE CAPITAL AND CASH FLOW
In times like these when the economy is turbulent, you need sufficient capital to carry your business through. Yet, businesses with fewer than 500 employees typically have less than one month of a cash buffer. There are several things you can do to ensure you have the necessary cash to get through a business disruption. First, if you currently have a business line of credit, consider opening or activating this line, even if you do not need the funds at this time. In addition, there may be opportunities for you to access business term loans, deferments on current loans, or refinancing of current business loans. For example, the U.S. Small Business Administration (SBA) has made Economic Disaster Loans available to qualified small businesses. It is providing low-interest loans of up to $2M to help businesses overcome the temporary loss of revenue during the state of emergency. A loan application, the process for applying and details on the loan can be found on its site. And through the Federal Coronavirus Aid, Relief and Economic Security (CARES) Act, the largest stimulus package in U.S. history, eligible small businesses have access to a paycheck protection program, loan advance, bridge loan and debt relief.
3. REVIEW YOUR BUSINESS PLAN AND YOUR BUDGET
With your business environment rapidly changing, it can be especially beneficial to synchronize all aspects of your business using a holistic approach to planning. At Luma Wealth, we use The Entrepreneurial Operating System® (EOS), a business operating model that aligns all aspects of our business (people, product, processes, data and vision). Using a system like this can help you make decisions and solve business challenges. For example, if you are scaling down, you may want to determine the number of team members needed to profitably deliver your new target revenue. Then, you will need a strategy for ramping up when it’s time to rebuild, including a plan for maintaining relationships with key employees. With many aspects of your business in flux, you will also need to revisit your cash flow and budget. If you have restructured to address a new reality, it’s time to prioritize your expenses. One way to manage your cash flow is to categorize expenses using a P.E.R.K. approach (Postpone. Eliminate. Reduce. Keep). However, be careful not to eliminate expenses that could be essential to driving future business growth.
4. DISCUSS YOUR BUSINESS AND YOUR FAMILY MISSION
Family is of the utmost importance to most business owners, and now may be a good time to hold a (virtual) family meeting. Meetings can be used to facilitate family business decisions, build cohesiveness and trust and encourage innovation, allowing families to work cooperatively to decide the best future for their family and business. In addition, if you don’t have one already, now may be a good time to create a family mission statement that encapsulates your family’s purpose and goals, defines the values that you hold dear and aligns everyone’s efforts for a common good.
5. CAPTURE OPPORTUNITIES
There is often a silver lining to periods of financial disruption because with planning, there may be ways to recoup your losses or enhance your wealth. For example, when investments decline in value, you can sell and ‘harvest’ losses to offset future gains and ordinary taxable income by up to $3,000 each year. In addition, there may be an opportunity to convert traditional retirement assets to Roth IRA assets. Investments held in a Roth account are tax-free, and converting a portion of your investments (while the values are depressed) can result in significant tax savings over time. Since Roth IRAs have no withdrawal requirements and can continue to grow tax-free, this can be a useful strategy to mitigate and minimize taxes for individuals who lack tax diversification. Finally, with interest rates at all-time historic lows, it may be possible to save money by refinancing outstanding liabilities. If you have a mortgage on your primary residence or a vacation property, or a pledged asset line of credit to help finance your business, now may be an opportune time to lock in low rates. As history has shown, markets don’t stay down. Working with an advisor who understands how to leverage potential savings strategies can yield substantial benefits.
Andrew Connors, CFP®, CEPA®, has spent 20 years in the personal financial management arena and is a senior advisor and niche leader for business owners at Luma Wealth Advisors in Cleveland, Ohio.