Leading and Learning in Difficult Times

Now several weeks into the COVID-19 crisis (doesn’t it seem longer?), it’s clear to organizational leaders that the work of organizing and planning for the near-term is priority one.

For most, this begins with a thorough financial review and assessment of the organization’s cash position.

At a high level, this starts with totaling up the company’s liquid reserves (cash, cash equivalents, and marketable securities). Next, determine your monthly budgeted expenses. A simple calculation will tell you how many months the organization can “keep the lights on” should all operating income stop.

Next, review your monthly operating budget and determine fixed and variable expenses (this should have already been done as a first step in calculating break-even levels for products and services). Determine as best you can those expenses that may be eliminated, reduced, and/or deferred. Top tip: Go deeper than you think is necessary. You may not get a second chance at this.

Be sure to reach out to your suppliers and determine the extent to which they will work with you to cancel and/or defer contracts and existing agreements. Remember, they are feeling the effects of this as well; patience, fairness, and empathy will serve all parties well during these difficult conversations.

Bring your team together and develop a contingency plan and budget with revenue projections and recommendations for expense reduction. Be specific and detailed. Resist the temptation to be overly optimistic about how long it will take for things to get “back to normal”. Better to overestimate the financial impact the current crises will have on your organization than the other way around. 

This contingency plan may include estimates of the deferral, reduction, or elimination of receivables and/or contract payments from customers if that is likely to be at issue (and it may). You might consider extending favorable terms by adding more time to the payment schedule where you can rather than discounting as a starting point. While protecting your cash position is critical, maintaining the value integrity of your pricing is also worth considering as you work your way through this difficult balancing act. 

Review this plan with your advisors, your banker (if appropriate) and if you have one, with your Board of Directors. Consider their input and feedback before finalizing the plan.

Develop a communication process to inform your stakeholders: investors/shareholders, employees, suppliers, and customers. Each stakeholder group should receive a version of the message that is appropriate and customized for them.

Plan to be in frequent, scheduled contact with your stakeholders going forward. Stick to this schedule even if there is not much new to report. Hearing from the organization on schedule as promised helps build a reputation for reliability and trust, a valuable commodity at any time but especially during a time of uncertainty, confusion, and concern.

A final thought. The economic fallout from the current crisis brings into sharper focus the general lack of financial acumen on the part of so many of our team members. This lack of understanding and appreciation of what is required for a business to generate a profit isn’t anyone’s fault. It simply isn’t taught in any organized, structured way (except for those who chose to study finance and/or economics). Yet an understanding of the basics of finance and business has value for everyone both in the workplace and at home as they attempt to make sense of their own household budgets and savings plans. Why not take this opportunity to plan for basic financial training for your team members? One excellent resource is Finance Plain & Simple: A Painless Look at Finance for the Non-Financial Manager. 

For more information, contact me at truncalephd@gmail.com.