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COVID-19 Business Continuity Planning Tips

By STEPHEN N. KLEIN, CPA

April 14, 2020

A huge number of businesses have been adversely impacted by the Coronavirus (COVID-19) emergency, whether by forced business closures or dwindling demand for products and services due to shelter in place orders. When translated into numbers, the toll becomes more transparent. In the last week, alone, over 200,000 unemployment claims have been filed in New Jersey. A similar number of unemployment claims have been filed in the five-county area near Philadelphia. The unfortunate reality is that many have had to make tough decisions to ensure financial vitality. Moving past immediate cost reductions, there are steps to take to ensure the business is ready for the opportunities and issues which may arise when re-opening. Areas such as scenario planning, cash flow management, communications, expense management, and more should be included in a business continuity plan. To help clients, prospects, and others, Klatzkin has provided a summary of planning topics below.

Key Business Continuity Considerations

Scenario Planning

A key issue to address in the planning process is how the company will manage, when businesses reopen and if, several employees become sick simultaneously. Given the fact that disease spreads from person to person in close proximity, its possible infection rate could spike amongst workgroups or departments. The key planning concern is how the company will continue to manage if various departments face shortages, causing a disruption of service. In addition, challenges from travel limitations, quarantine, and restricted public transportation schedules may also create issues.

As part of the process, it’s important to consider the following:

  • Critical Functions– Be sure to identify the departments or workgroups that are essential to daily business operations. This could be the regional office, engineering department, or another specialized function. Start planning around different scenarios that assume a total or partial department shutdown? Is it possible to have staff from another department, “fill-in”? Are there other options available such as temporary staffing or outsourcing?
  • Remote Work Systems – Most businesses are currently closed and their employees are working from home. . One of the important lessons learned during the current emergency is cybersecurity can be a challenge. Carefully review various security issues and how existing resources can be leveraged to address issues. Don’t forget about developing processes and procedures so those working remotely can perform to expectations.
  • Critical Employees– In every business, there are essential employees necessary to function. What would happen if they were unable to work? How would the company be able to continue operating? Assess whether others could learn essential tasks or if external help, such as outsourcing, would be needed. How long would it take for them to come up to speed? All critical issues to consider when building a plan.
  • Essential Suppliers – Don’t forget that problems with external vendors can also have an impact. Are essential suppliers positioned to continue the fulfillment of orders on a timely basis? Take time to have a conversation to gain insights into their continuity plans. Also, consider identifying additional suppliers should it be necessary if the unexpected occurs.

Cash Flow Planning 

It’s essential to conduct a cash flow analysis to ensure there will be enough money to fund operations into the recovery period. It’s typically recommended to run an analysis on a 30, 60- and 90-day period. Unlike profit and loss statements, this analysis will show income sources and where the money is spent. This report is vital because it shows how long cash will last under different scenarios and the gaps which may occur.

Once identified, the continuity plan should focus on ways to manage expenses and increase revenues. Significant variables to assess include securing viable financing, focusing on the cash-to-cash conversion cycle, assessment and minimization of variable costs, review accounts receivable policies, extend payables, and carefully review accounts receivables.

Communication Planning

It’s also important to develop a communication plan with employees, customers, bankers, landlords, and suppliers. Maintaining open and appropriate communication ensures the business is in the best position possible.

  • Employees– Determine which employees you will need when you reopen your business. Your cash flow analysis will help determine how much salary and benefits you can pay and for how long you can afford to pay them. You may need to furlough or terminate some or most of your employees that are not absolutely needed. As business improves, you can rehire some employees as needed. There are new federal and state loan programs available to offset some payroll costs. One of these loans is known as the Payroll Protection Program (PPP).  The PPP loan could be forgiven if at least 75% of the proceeds are used for payroll costs over an eight week period after the company receives the loan proceeds.  Recent legislation permits employees who are working part time due to the Coronavirus to qualify for state unemployment benefits.
  • Customers – As the lifeblood of any business, it’s important to communicate with them regularly. Open discussions about the issues and challenges faced offer important insights on how to serve them better. Identify a list of top customers, along with a pre-determined set of exploratory questions. Remember, customers need to see the business as an essential partner during recovery. Reinforce this perception by staying actively engaged.
  • Bankers– Contact them to review the cash flow analysis and highlight the expected funding gaps and needs. The analysis will convey the level of detailed planning invested and what is needed to get the company through the crisis. Consider drawing down existing lines of credit or asking for additional ones. Negotiate extended repayment terms of existing loans and discuss whether the business qualifies for federal funding programs.
  • Landlords– If renting, call the landlord, and ask for either a delay in paying 1-3 months’ rent until ample income returns. Look for other creative ways to delay immediate payments, such as adding missed rent payments to the end of the lease. If the lease is up for renewal, consider renegotiating lease terms.
  • Suppliers – It may also be necessary to delay paying suppliers until the business is generating income. As a result, it’s important to communicate with key suppliers and determine payment plan options. The cash flow analysis and planning will help determine which vendors to pay and the monthly payment amount. Since they will want the future business, they will likely negotiate with a workable solution.

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Business continuity planning will help to prepare management for a variety of situations and setbacks through these challenging times and the re-opening process. Although it’s unclear when business will resume, it’s essential to use this time for business planning. If you have questions about the information outlined above or need assistance with another COVID-19 issue, Klatzkin can help. For additional information, click here to contact us. We look forward to assisting you.

About the Author

Steve is a Partner Emeritus and focuses on serving the succession and exiting planning needs of business owners. He works with business owners to build, facilitate and help implement an optimal exit plan. Much like his clients, Steve studies all the variables and provides a comprehensive solution to meet client needs. Steve helps clients look...

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