Mar 03, 2009
by JAMES ELLIS of Central Oregon Community College
When you are an entrepreneur living through bad times, your professional support team includes your accountant, lawyer, insurance agent and banker. These pillars of support can carry your business through the difficult period that lies ahead. It is certainly wise and often essential that you seek their advice. When cutting costs becomes an obsession, some small companies commit a fatal mistake by cutting or eliminating these services.
In the boom times, even the worst-managed companies can appear profitable. High sales can mask a poorly managed company. But during a slow economy, as sales decline and profits slump, poor business practices and unwise decisions are exposed. One good business practice is having a strong professional support team. Your accountant, lawyer, insurance agent and bank can help you become a nimble company. Their professional advice can enable you to adapt swiftly to each turn of the recessionary screw.
YOUR ACCOUNTANT. Many small business owners create their financial statements only on a quarterly, semi-annual, or annual basis to satisfy tax or banking needs. In a rapid decline of the economy, some businesses start to thrash around blindly as they react to lost sales. A company can suffer severe damage if it operates blindly for as little as one quarter. The need to review your financial posture often requires the creation of frequent financial statements. Items or areas that you could ignore during the boom times may now become trouble spots requiring immediate attention.
Instead of meeting only a few times during the year with your accountant, you will need his or her services more often. Getting with your accountant to review monthly or even weekly financial statements will indicate quickly the financial trends and provide timely information.
Work with your accountant to update your business plan. Most business plans are designed for growth when seeking capital. Your old business plan may need recalibrating, because the growth model of your old business plan may no longer hold realistic assumptions.
Review with your accountant how to manage and contain your fixed costs. Reducing or containing property taxes, utilities, insurance, salaries, rents, mortgages are always a challenge for companies. With commercial vacancy rates, your business might be a strong position to renegotiate leases. Having the courage to identify and act on reducing these costs could save your business.
YOUR LAWYER. Review new and existing contracts with your lawyer. In a poor economy, companies are often more inclined to work with each other. Most companies cannot afford to lose the business, so they are more likely to work out an amended agreement. Your circumstances may have changed significantly since the time of the original agreement. This is an opportunity to renegotiate or amend agreements that no longer make sound business sense.
When faced with the unpleasant task of laying off workers, consult your lawyer first about potentially sticky issues. Your lawyer can help you with the three distinct periods for a layoff: preparation period, the actual layoff, and post layoff activities. Review with your lawyer your company’s published benefits package, termination procedure and grievance procedures. Any collective bargaining and employment agreements should be reviewed for compliance issues. Your lawyer will help to ensure compliance with the Worker Adjustment and Retraining Notification Act. (WARN). A lawyer can also help in creating the criteria for a neutral and nondiscriminatory method of reducing staff.
Your lawyer should review your company’s checklist for executing the lay-off and covering important topics that need to be communicated to employees such as explaining the necessity for the layoff, written documentation for all benefits such as the severance period, unemployment insurance, outplacement services and language that might be interpreted as false promises.
YOUR INSURANCE AGENT/BROKER. As the economy changes so will your risk management strategies. Talk to your insurance agent or broker about the proper level of coverage when you intend to downsize your business. Real estate, equipment, vehicles, and other assets may become idle and no longer require the same type or level of insurance.
Insurance companies provide an array of services. Many insurance companies provide services through their loss control department for commercial companies. Through this department insurance companies help identify and spot possible perils or hazards. In a haste to downsize and cut costs, companies might reconfigure their physical plant and inadvertently, create unsafe conditions. Insurance companies are staffed with engineers and safety experts specializing in inspecting business premises and identifying possible trouble spots. Their recommendations are meant to apply best business practices. Safety inspections of machinery, boilers and physical plant can save you money. You may already be paying for these services.
Legal defense services concerning liability lawsuits may also be provided in your coverage. During slow economic times, numerous lawsuits can be filed against your company. Often these lawsuits are quickly dismissed once those suing find that your insurance company has a strong and well-known legal department.
YOUR BANKER. Re-evaluate your relationship with your bank. Bankers do not like surprises, so it is essential that you keep them informed about your business changes. Some small businesses have moved their banking from large national commercial banks to smaller community banks. A smaller bank might provide the personal service you wish to receive. Some small companies employ the strategy of switching banks every now and then, because new customers seem to receive the better deals than the present customers.
It is important to build trust and credibility with your banker. Maintaining a healthy line of credit is becoming increasingly difficult. Your company’s past successes of sales and earnings may no longer be enough to sustain your future banking relationship. Be prepared to provide updated financial statements and an updated business plan.
Even healthy companies are being asked to have the owners provide personal guarantees. Remember: banking still follows the practice of lending you money, provided you do not need the money. Building a history of good credit to make you attractive to the bank will matter the most when you really do need the money.
All companies—of all sizes—need a professional support team. Race car drivers have their pit crew. NASA astronauts have Mission Control. You should not try to go solo without your professional support team.
James Ellis is an assistant professor in the business department of Central Oregon Community College. He can be reached at 541/383.7718.