A Path to Financial Stability

A sound business strategy is important no matter what the state of the economy. As you work with clients to determine the best methods of surviving the recession, be sure to discuss the following critical points for seizing opportunities to refocus, contain expenses and reassure customers.

  Take a fresh look at your budgetary and revenue needs. Are you meeting budgeted projections? How much of a drop in revenue can your business withstand and for how long? What are your cash-flow needs for the next 90 to 120 days? Or 120 to 180 days? Do you have sufficient cash reserves for the next 30 to 60 days?

 Check with your lenders on the status of your credit lines. Are you in compliance with their terms? Will your bank renew their commitments at similar amounts, rates and terms? If your credit lines are frozen or at their limits, consider meeting with vendors to work out a payment schedule that will allow continued delivery of critical materials and supplies.

 Look into alternative types of financing. Consider loans on life insurance policies and loans from key customers that rely on your business for their materials and supplies or from labor unions, local development agencies or the U.S. Small Business Administration.

 Keep an eye on accounts receivable and the amount of credit extended to customers. Watch for new patterns  of slow payments and follow up immediately. Review your largest and riskiest accounts to determine if credit constraint or an economic slowdown will affect their ability to pay you. Keep receivables aging current.

 Closely manage accounts payable. Forfeiting early pay discounts may be more advantageous in preserving cash that may be needed for critical items. Keep payables aging current.

 Monitor inventory levels in general to identify where lower inventory levels of materials and products can be maintained. Consider selling slowmoving inventory at a discount. Keep in contact with suppliers to co-manage replenishment and delivery schedules to avoid building excess inventory while at the same time avoiding shortages that could result in lost revenue.

 Analyze your expenses specifically to determine if spending can be reduced. Communicate to staff/team members about tightening spending. Manufacturers should review inventory management practices for opportunities to reduce on-hand inventory. Service companies should ensure they’re capturing all their billable hours and invoicing promptly by billing all contractual items and passthrough expenses (that is, billable third-party services and travel and living expenses).

 Don’t engage in panic selling of investments. Keep in mind that markets tend to bounce back. Focus on longterm rewards instead of reacting emotionally to short-term events. Contact your financial adviser to ensure that your portfolio is diversified and meets your risk tolerance.

 Contact your good customers. Even casual discussions can lead to new business opportunities. Maintain constant communication with customers to help build stronger relationships; let them know you are available even during uncertain times. Consider ways to stay visible to customers, such as an open house or other marketing efforts.

 Going forward. Continually re-evaluate and gauge your company’s current situation and the marketplace. Revisit this checklist often, stay the course and remain focused on goals. Keep track of efforts, and review and analyze the results. Identify areas where strategies are not working and modify accordingly.

—Adapted from the AICPA Private Companies Practice Section (PCPS) client credit crisis communication letter. http://pcps.aicpa.org/Client+Credit+Crisis+Communication.htm.


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