TIPS FOR DECISION MAKERS: SHIFTING THE FOCUS FROM PROFITABILITY TO SURVIVAL MODE DURING THE COVID-19 PANDEMIC (PART ONE)

Written by Joseph J. Bellinger

Joseph Bellinger has thirty years of experience as an attorney working in business bankruptcy cases, advising businesses on insolvency issues, restructurings, and workouts.

A significant aspect of my work is advising small and mid-sized companies coping with financial distress.  This is part one of a three-part series that describes the principles I have learned about the challenges faced by the decision-makers when their company is suddenly faced with financial distress.  Of utmost importance is that the decision makers can make the paradigm shift from focusing on profitability to survival mode.  Even after recognizing that their company must shift to survival mode, decision makers may not know how to approach the questions that arise because survival mode is very different than focusing on profitability.  Hopefully, this three-part series will be helpful to decision-makers who must shift their thinking to survival mode for their business to survive this near complete shut-down of the economy due to this global health crisis.  
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The key to a company’s survival is for its decision makers to shift focus from profitability to survival mode.  
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The COVID-19 pandemic has caused a sudden trauma to the financial condition of the markets and most businesses.  Survival for those businesses hard-hit by this pandemic depend on the ability of the decision-makers to make the paradigm shift from profitability to survival mode.  Decisions that will determine a company’s survival must be made now –they cannot be put off until we have credible information regarding the magnitude or duration of this pandemic. Survival-based decisions must be made now -before decision makers know whether their company is eligible for any state or federal financial relief, or the amount or duration of any such relief, or when or how any such financial relief will be infused into the markets.   
 
Develop a short-term financial survival plan, share at least the main points the plan with the company’s workforce, and focus on implementing the plan for survival.   
 
Financial distress can challenge anyone’s fortitude.  The best antidote to the stress and distraction it causes is to develop a plan of action and focus on implementing the plan.  After I help clients hammer out a survival plan, it is apparent that a tremendous weight has been lifted.  While they may say that developing the survival plan was a miserable exercise, they are relieved to have a plan, “Now I know what to do.”  There is tremendous value in that mindset.
 
A company’s survival plan should be focused on the short term.  The measurement of “short term” is often dictated by circumstance.   I have had new clients whose immediate focus was, “How do we fund a payroll at the end of the week?”  While there may be some very short terms needs to plan for and manage, in general, companies tend to operate on a monthly basis, and a 30-day (monthly) short-term plan often works well.  While less vital than the short-term plan, develop a longer term 60 to 90-day plan for the company.  In this time of uncertainty, there is little utility in forecasting or planning beyond the next 60 to 90 days for most companies.
 
Any financial survival plan is based on complete and accurate financials, especially an income statement and a balance sheet. To the extent possible, develop a survival plan on a cash basis and for each 30-day cycle of the survival plan the two most fundamental questions are:  

1. What revenues are projected for collection during the cycle, on what dates, and how much? 
2.  Will the revenues projected for collection in this cycle pay the actual and necessary expenses that will come due during this cycle?

 
The greater the cash deficiency that results from answering these two questions, the more important it is to re-examine every aspect of a company’s operations and processes.  What adjustments can be made to get the cash deficiency at or near zero so that the company is at least meeting its expenses- surviving?  For example, restaurants are implementing survival plans intended to keep all or most of their employees on the payroll relying solely on take-out/delivery. This is by no means an ideal lifestyle choice, but it is a sound survival tactic many restaurants are implementing to survive and keep their staff employed.  Fundamental to the survival plan is whether the company and its workforce can be sustained in this crisis, or does the company’s business model require an overhaul for all or some portion of the business to survive? 
 
 
If you need legal assistance, please email us at [email protected] or call us at (410) 598-0582.  At Bellinger Legal Services, we take ownership of your business challenges and alleviate the pressure involved with legal distress.  Our team is here to help.
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This is not intended as legal advice and readers are admonished not to consider the content as legal advice or as recommendations they should follow.