A Primer on Effective Business Disaster Planning

How to Survive in a Down Economy

By Nicholas LaPier, CPA

Businesses, and especially small businesses, are dealing with a situation that is in many ways unprecedented in both nature and scope: coping with the COVID-19 pandemic.

Indeed, this crisis has impacted almost every industry sector and each specific business, except for supermarkets and online-delivery specialists such as Amazon. No one really knows how long this crisis will last or what the economy will look like on the proverbial ‘other side’ of the pandemic.

Despite the unique aspects of this crisis and the depth of the disruption to the economy in general, there are basic rules, or guidelines, when it comes to business disaster planning, and they apply to the COVID-19 pandemic as well.

Here is a quick checklist of items that I use when talking with clients about this crisis — and any down-economy situation.

• For starters, if you don’t have a disaster-recovery plan, create one. If you do have one, take it out of the drawer and review it. Also, modify the plan over the next few months based on actual experience, and create one as you go by documenting decisions and results.

• Consult your most respected business advisors for advice. This list includes your CPA, bankers, and peers.

• Conserve business assets, both cash (cash flow is tantamount to survival in times of disaster) and investments (don’t sell underperforming investments unless necessary).

• Review current operating costs as compared to expected revenues. And if your costs far exceed the projected revenues, first determine how long the shortage is and how the short term can be funded. Options, and there are many, can include:

– Contribute additional owner capital;

– Access your currently available business line of credit;

– Utilize your existing cash reserves;

– Start reviewing all SBA and state lending programs in place now because of COVID-19. You may even want to start the application early — as of this writing, the initial Massachusetts emergency loan program has already been exhausted;

– Review your commercial insurance policies for business-interruption coverage and how to submit a claim;

– Take a reduced owner compensation. Not only will this help cash flow for the business, you will reap some payroll tax savings as a result;

– Assess where a reduction in workforce makes sense;

– Make a careful assessment before incurring new costs and expenses;

– Accelerate collection efforts on unpaid receivables;

– Enhance your selling efforts — increase your social media posts and other media outlets, while staying the course with advertising and marketing campaigns; and

– Consider closing for a short period to curtail as many costs as possible.

• While addressing the short term, business owners must be focused on how the long term can be funded as well. Options here include:

– Additional owner capital/resources;

– Longer-term reduction of owner compensation;

– Continued reduction of workforce;

– Identification of other cost-saving measures;

– Enhanced sales and collection efforts;

– Obtaining SBA, state, or traditional lending programs; and

– Additional loans from non-traditional sources, such as leasing companies and non-equity partners.

As noted earlier, the COVID-19 pandemic is in many ways unique when it comes to business disasters. It is unlike a natural disaster, a recession, or a terrorist attack like 9/11.

But it is like all those others in that it is a situation that requires careful planning — and execution of a plan.

Nicholas LaPier, CPA is president of West Springfield-based Nicholas LaPier PC CPA; (413) 732-0200; [email protected]