We’re in the midst of a once-in-a-century pandemic, and uncertainty has never been greater.  Each week, and sometimes each day, presents a new challenge, and some of those challenges present issues that we may not be prepared to face.  But we persevere. 

It’s been five months since the wave of shutdowns began, followed by tepid re-openings, an impatient populace and the need to scale back the re-openings, hopefully temporarily.  Business marches on, and the economy is showing remarkable resiliency.  It’s largely a testament to the resolve that we collectively have, making the best of an extremely difficult situation.  There are fractures in the economy.  The travel industry is getting hammered.  My home state is particularly vulnerable, as we heavily depend on tourism to support our economy.  Because of this, we may have businesses that are affected by the downturn in travel or by difficulties being faced in other segments of the economy as well as the effect of the shortfall in tourism-based tax receipts being experienced by our state and local governments.  Some of these ripple effects are yet to be felt, but they will eventually have an impact.

As we all know, small businesses are the lifeblood of our economy.  The ones I know and serve have been very creative and proactive with their approaches to the new reality.  It’s comforting to know that determination is making such a big difference for all of us.  But there will be further challenges, and those challenges need to be artfully managed to ensure survival.  Most of us experienced and won’t soon forget what happened twelve years ago, when the financial markets nearly collapsed and caused shocks to our economic system.  It appears our financial sector is in a much stronger position this time around, which is a huge asset to small business.

I’ve worked with many distressed businesses over the years, and while they all had some fundamental changes that needed to be made to ensure survival, there was one common theme for all of them: liquidity.  Many of them didn’t really know how to manage their cash resources and also didn’t know how to manage their relationships.  While cash management is critical for a distressed company, nothing is more important than managing the strategic relationships that produce those cash resources.  While I’m certain there are many, many books that have been written by extremely capable people, for me it generally boils down to one truth:

The simplest way to manage strategic relationships is through frequent and cogent communication.

Generally, your strategic external relationships that affect your cash resources cover three areas:

  • Customers
  • Suppliers
  • Sources of Capital (most often a bank)

For customers, it’s important to keep those relationships exactly where they need to be, as they are the source of your cash.  This is often more difficult in today’s environment, because some customers aren’t waiting around to see if their suppliers are in trouble.  They’re calling to make sure it’s “business as usual”, seeking reassurance that they will continue to receive what they need, and searching for any weaknesses that may exist.

For suppliers, it’s important to be just as proactive with them as your customers are with you.  Call them.  Make sure they’re answering the phone.  Ask them how they’re doing.  Pledge to continue working with them so that they have some level of assurance that your business is solid (provided that it is). 

For sources of capital, give them updates.  Don’t wait for them to call you.  Give them more information than what they request, and make sure that it’s relevant.  That will give them assurance that you’re on top of your business and that you understand how it’s being affected, and that you’re aware of their heightened need to understand how current circumstances are affecting your business.

While the above sounds simple, the day may come where it’s not so simple.  That day is when you, as an owner, realize that your company is encountering significant operating issues that may compromise your future.  This is a place where no business owner wants to be, but nearly all of us have experienced this, and many of us more than once.  A natural reaction is to pull back, reassess, and take steps to correct whatever problems arise.  But when pulling back, many of us resort to reducing communication, often substantially, and that can be the worst thing that we can do.

I have worked with many owners who are reluctant to call their lenders with bad news.  They’re often afraid it won’t be received well, that they have been a failure and that the lender won’t be the least bit sympathetic.  Also, loan agreements generally have language that gives lenders broad powers over your business should you be in violation of the terms of the agreement.  The natural reaction is to then tell a bank as little as possible as infrequently as possible, because the relationship is at risk.  However, that’s probably the worst thing you can do.  I have found that maintaining an open dialog with a bank is the healthiest approach, in good times and in bad times, because many banks will be creative with your situation.  The last thing they want to do is own your business, because if it gets to that point, they’re going to lose money, recovering pennies on the dollar.  If you’re able to present them with your plan to improve your future business, they’ll usually listen, and they may be able to offer assistance that you aren’t aware is available.  That assistance may be the difference between success and failure.

Do you remember the friendly conversation that you had when you first met your banker?  That’s the same person you’re dealing with today.  They’re still friendly.  They want to help you, but they can’t help you if they don’t know what’s going on.  Nobody likes unpleasant surprises, and the last thing your banker wants to do is communicate up the chain in the bank that your business is at risk and has been for a while, and they didn’t know it.  That will make your bank far less likely to be helpful, because you’ve taken away the luxury of time for them to help resolve your problems.  I don’t want you to think that solving this problem is simple, because it’s not.  The bank may decide they no longer want you as a customer.  If that happens, don’t be insulted.  It’s a business decision.  It’s not personal.  If they make that decision, you don’t have to scramble to find a new lender.  Your current bank will give you time to find a new one, but you’ll have to give them regular updates regarding progress that’s being made.

For your customers, some may get nervous if you start hitting rough water, but most don’t want to shift around their sources of supply unnecessarily.  Make sure they know where you stand.  Some may choose to leave, but the good ones will stay as long as you can deliver.  If you start having schedule issues and may not be able to deliver according to the agreed schedule, make sure your customers know the alternatives as soon as possible.  That gives them more time to adjust, which may be the difference between keeping versus losing the business.

For your suppliers, the issue often becomes an inability to pay on time.  If that happens, call your suppliers and let them know your circumstances.  Don’t just start paying late.  Your key suppliers won’t appreciate that.  If a payment is a week late here and there, that’s generally not an issue, but if your religious 30-day payments are now routinely being made in 50 or 60 days, you need to make sure that your suppliers know why things are changing.  Many suppliers will work with you.  Some will actually surprise you with their flexibility.  They likely don’t want to lose your business, so keeping them in your camp is crucial.  I have been in circumstances where just one supplier playing hardball with a client would have been the difference between survival and liquidation.  While there are a number of strategies that are used with suppliers to a distressed business, it all starts with communication.

When I first began working with distressed businesses, I was pleasantly surprised at how flexible people could be and how willing they were to help.  I think the best way to describe these relationships is to compare them to experiences you have with your children.  If you’ve had the pleasure of dealing with teenage children, don’t you always feel better about things when they’re talking to you, and aren’t you much more concerned when they aren’t?  Business relationships aren’t much different.  Communication lets people know where they stand.  They may not like what they hear, but at least they KNOW, and are able to react accordingly.  We all react better when we know what our options are.  Communication keeps those options clear.  Make sure that it’s your greatest asset.

Finally, let’s not forget your employees.  They have a strong desire to know what’s going on.  I have some clients who have started regular weekly updates with all of their employees.  Some of them are only 15 or 20 minutes, and while some are video conference-style meetings, many are in the form of a recorded video that each person can watch when convenient.  Employees always want to hear from you, the owner.  Whatever they hear carries a lot more weight when it comes directly from you.  While this kind of communication may not be in your comfort zone, it needs to be done, and it will make a big difference.

At Nperspective, a major focus of our business is supporting business owners to help them achieve their goals.  In times of distress, this often means serving as an intermediary between ownership and customers, suppliers, lenders and, at times, employees.  While keeping the communication lines open is important, it doesn’t always have to be the owner delivering the message.  We often assist in this process, as how information is conveyed is often more important than what’s actually being said.  Providing this support reduces pressure on business owners and often affords them more clarity when making decisions, as they know critical issues are being addressed, but they don’t have to address 100% of them by themselves.  Our understanding of your business goes beyond the numbers, and our wealth of experience gives us the ability to be a strong strategic advisor who can help you with sound advice and insight when you need it the most.

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