This is not the first pandemic nor is it the first time the daily lives of humanity been upended. Each time, we feel like we have learned some big lessons and that we will do everything we can to be prepared for next time. And yet, time passes, people have pressing needs, we let our guard down, we de-fund and let lapse groups, departments, protocols that have not been in use for years.
When I was in IT, I’d have heated conversations about the need for enough backup tapes to cover the need for the business. We’d discuss how much space was being used, how much tapes cost, how we need bigger and more complex tape systems to have a manageable backup window and also time to restore.
But we don’t restore often if ever for many AV integration firms and for people who count the pennies, this insurance looks like wasteful spending. Until the moment it is the difference between business continuity and the loss of everything.
We are in the midst of a major global event where we are all being tested at once. Based on my conversations with many people in China, the US will need to shut down all but the most critical functions for about 50-60 days. Many businesses will not survive this chapter.
The most vulnerable companies are those that do not have cash on hand and are at the limits of their credit as but even more at risk are those that have not planned. There is no survival without a plan.
Without a plan, events happen to you and you can only react with what you have on hand. A frantic, painful, and desperate death awaits those who have only looked ahead with rose-tinted bull-market glasses.
If you do not have a plan, you still need a plan. It may feel like you’re behind but having a late plan is immeasurable better than none at all. No one is going to successfully feel their way through this one. Survival will take intention and action.
We have worked on making sure we have clear metrics for what is good preparations and what triggers actions.
2 years ago:
Gain banking visibility
We adopted the financial tools of the book Profit First by Mike Michalowicz. At a high level it divides up your banking into different actual accounts. This is important. This cannot be a logic problem or excel formula.
Everyone will have their version of this and we broke them out into accounts for Deposits, Profit, Tax, WIP, OpEx, Vault.
All money that comes in hits deposits and splits out. First x% to the Profit account (hence book name, imagine ½ of your EBITDA % of revenue projection going here), then all sales tax and expected federal and state tax, then money destined for WIP (Work In Progress which is money needed to complete work outstanding), OpEx for all overhead, payroll, rent, insurance, etc and then the vault.
This is where we then take a % of what went to the Profit account and send it to live for a rainy day. Our metric was it was “full” when it could pay 3 rounds of payroll. Then it was not topped up anymore unless payroll grew.
The tactical benefit here is that by simply looking at your banking app, you see what job every single dollar has and how many of them are there to do it. It makes cash management, bill paying, profit distributions and savings a non-calculation. You just get the numbers.
Bank account becomes a dashboard. Do you have enough to pay sales tax and payroll and buy that new truck? Answer that in seconds.
Cashflow management is key but it doesnt require an army of finance people. Noe, more than ever, managing cash is critical to survival.
Line VS Loan
We made use of a loan early on to fund our growth, buy tools, rent a bigger space, get a truck. And 36 months later it was all paid back. But at the same time, we also asked our bank for a line of credit which helps smooth out cash flow.
Think of it like your own piggy bank you borrow from and then pay back with the money you were waiting for. If a project requires a big outlay of materials upfront, a line is there to provide that money while waiting for the client to pay.
The bigger the project the less likely a client will pay upfront. Most banks will lend up to 70% of your AR. The SBA offers loans through banks that underwrite them and are the most common cash flow tool.
On the other hand, a loan is needed for something like building an addition to your office, buying a new vehicle or other big-ticket purchases that need to be paid off over time.
Loans are also available through the SBA and SBA lenders. Right now there is an emerging SBA program for emergency disaster relief that is being underwritten directly by the Federal Government for loans over 350K and rates under 4%.
It may sound nice on TV, but those loans, if you applied today, will take no less than 3 months to be funded. Online lending is basically loansharking as are loans against receivables and looks VERY bad on your books. Avoid at all costs. Your bank is now able to get 0% dollars from the Fed to free up credit, go and ask for a bigger line and or a loan now while money is cheap.
We have no dumb hands. Every person at FMS is multi-disciplined. We do not have one goose that lays golden eggs. Not in the tech shop, not in sales, not in the exec office. No one is irreplaceable. The business must be adaptable and hiring people who love to learn and work on diverse things is key to our success.
We have 5 people who have taken Extron programming classes, 4 have taken Crestron programming classes, 5 have learned to program DSPs and the list goes on. As we are going to see access to job sites get limited, we have rafts of online certs and training to work on. We will come out of this with a ton more skills.
While we did all of this and worked on it for two years, there is nothing here that you cannot work on now. Profit First is something you and your finance people can enact in a few days, depending on how motivated you are! And some banks are happy to underwrite loans in a few weeks and the same for lines of credit.
What we are doing now:
Deal with what is going to kill us next
It seems obvious but this should be a time for clarity of priorities and complete leadership alignment. Do you all agree on what the biggest threats are, who is responsible for what, what are the obstacles and what to do about them?
For most integrators, the next thing that will kill them is a cash flow blockage which in turn creates the most havoc around payroll, rent, bills, parts purchases. We developed a plan around three main points of cash conservation, headcount, bill priority and AR and created three steps.
Four steps really with step zero being a freeze on all non-essential spending and immediately cancelling all subscriptions, events, and anything else we can get out of that is not directly driving revenue.
Step one has a milestone of if revenue for the rolling 30 days drops under x. For that, we press more on the older bills for anything overdue, especially in the 91+ day column where no one should have more than 5% of AR.
Offer discounts, offer credit card payments, offer a free Sonos Play 1, but get the money IN THE DOOR. We performed an exercise where we ranked our vendors in order of importance. We love all of our vendors but we buy a LOT of ABC and we need to be able to keep buying it. They get paid first.
We also reach out to all of our vendors personally and individually to talk about terms and line. Those that offer better terms like 90 days and 50% more line, well, they absolutely get paid first. Leadership team takes a salary cut. Real talk here. There you go.
Step two happens when we have sustained lack of sales under X% of target and there is more billing prioritization, non-essential staff is put on furlough or reduced hours.
Ask if anyone wants to take unpaid time off, if anyone will take reduced hours. The underperforming staff that may have been on the bubble are let go. Talk to the landlord, see if they will take partial payments and a payback schedule.
Step three is meant to just not die. The steps before took guts and it hurts but this is where the hardest decisions are made. Reduce crews to a minimum, furlough or lay off all but the most essential staff, pay the key vendors, pay rent to keep the doors open. Keep communicating with vendors, do not dodge them.
That makes you anxious and them frustrated. You worked hard for these relationships, this isn’t personal, this is survival. Stand up, lead from the front, talk the truth, no excuses, it is what it is. You are needing to keep the doors open, people working, clients want their completed projects and vendors need to know if and when they will be paid.
Every plan will be different but the key is, put on your brave face, stand on that tank and make sure the team knows there is real leadership in place. That there is a plan. That this will not be easy, in fact, it will be very hard. That you intend to see this through and that you have no quit in you. That this matters and they matter.
Have a plan. Understand your positions. Be ready to make hard decisions.
Communicate clearly and often. This episode will claim a lot of business and personal casualties. The reality is bloody and tough and will not end for at least 60 days, the best case.
There is no honor in letting people find out the shop is closed by a lock on the door and an eviction notice. As leaders, this is when we have to be our absolute best selves. These are the moments where our rank is earned and we live to fight another day.
A decorated ex-soldier started a great website for first responders and ex-military called 30 Second Out and one of their saying is “No one is coming, it’s up to us”. We also adopted that saying. And as leaders it is even more important to live by that, no one is coming, it IS up to us.