Get your ducks in a row
Get your ducks in a row
by Heather Bain

Homecare business owners around the world continue to be vulnerable to the COVID-19 pandemic, with 79% of in-home care agencies applying for the Paycheck Protection Program or Economic Injury Disaster Loan in 2020 to stay in business. It is critical for homecare business owners to reshape their concepts of what it means to be prepared for an ongoing emergency.

Some specific resources apply to homecare. For example, the Centers for Disease Control and Prevention (CDC) has provided interim guidance on homecare for COVID-19-positive patients. Homecare providers should determine the risks and benefits of taking advantage of opportunities presented by the pandemic.

The Institute of Management Accountants Small Business Committee addresses issues that impact small- and medium-sized organizations and suggests that small businesses apply a three-step assess-build-communicate—or ABC—recovery planning framework as a starting point for business continuity in a time of crisis. That is:

  • A: Assess the current situation, preferably with a team of experts.
  • B: Build a plan by brainstorming with your team of experts (and create a Plan B as well if you have the resources).
  • C: Communicate calmly, clearly and continuously.

Let’s look closer at each component.

1. Assess the current situation.

First, dig into your current situation to determine the starting point for planning. Because the present economic environment is unprecedented, there are many areas in which business leaders are unprepared. Just how long we’ll experience the impact of the COVID-19 pandemic is unknown, but it is relatively certain that the economic effects will continue for the next six months or longer.

The best place to start is an assessment of cash flow. Small businesses should ask the following questions:

  • Based on our cash flows, can we function for six months?
  • If not, is it time to shut down operations or segments of our operations?
  • Based on cash flow, is the continuation of the business or segment for the next 12 months probable?

Managing cash flow is a challenge for most small businesses even in the best of times. With the novel coronavirus sweeping the globe, managing cash flow is critical for survival. Gaining a clear understanding of your cash and working capital needs is the most important and first step in any cash flow management strategy. It is vitally important that you, the small business owner, to fully picture what your cash flow looks like, especially in the short term. Consider assessing your cash flow situation for multiple time frames, such as 60 days, 90 days and six months. Each of these time frames may require you to consider different scenarios.

Depending on your situation, you probably have less time than usual to devote to your business operations and tasks such as accounts receivable and sales. Take a few minutes and identify the 20% of customers that account for 80% of your revenue and focus your attention on collecting what you can from them. Prioritize existing and long-term relationships over newer ones; those are the customers who are most likely to understand and be willing to work with you.

Sadly, personnel changes are the most painful transitions to tackle, but they are necessary for small business owners. As personnel is often the largest expense most small businesses have, it must be addressed. Some items to consider include a reduced (three-day) work week and salary cutbacks for senior personnel, including reduced benefits such as deferred retirement plan payments. Be strategic in reducing payroll costs and become fully aware of available government assistance programs—federal, state and local—for obtaining assistance to help your employees.

2. Build a plan.

The process of assessing cash flows allows a finance professional, along with the right experts, to build the plan. In other words, once a business has evaluated its cash position, leaders must gather all financially relevant data points to create a clear picture of reality versus expectation. Many of the safeguards that business leaders have used for risk management are ineffective when a pandemic happens.

Succession plans, buy-sell agreements, insurance policies, contracts with suppliers and loan agreements must be evaluated immediately. Understanding the practical effects of contracts and renegotiating terms can pose challenges for small business owners. In particular, there can be pitfalls in negotiating commercial real estate leases that disproportionately affect small business owners. This is why it is critical to plan and understand your needs. If necessary, reach out to competent legal counsel, who can quickly pinpoint key concerns with real property or commercial transactions and help you reduce your risk in negotiations.

Discuss with an attorney whether the effects of COVID-19 are included in the contracts under the definitions of force majeure and what remedies are available if it applies. An attorney may advise that any pending contracts should be revised to include specific force majeure language to protect the parties from unforeseen effects of nonperformance and liability.

Some types of insurance may exempt certain claims under the force majeure clause or other language, and others may simply not be enforceable or applicable in times of public emergency. These types of potential scenarios of business disruption and simultaneous cash drain must be considered when evaluating operations and cash flow scenarios. Now is the time to contact landlords, insurance companies, loan relationship managers, vendors and government agencies to determine contractual terms and possibly renegotiate them. Many lending institutions are allowing extensions on loans, credit increases and loan payment deferrals.

3. Communicate.

Once planning has been developed to a reasonable amount of detail, communicate the plan, identifying each initiative, the person accountable for the initiative, and the actions and budgeted cash flow for the initiative. Specify the goals and objectives of each initiative.

For instance, some projects like internet marketing may continue contact with customers, while others, such as discontinuing business segments, will preserve cash and other resources. Since communication is a two-way stream, create media that will allow for feedback and monitoring. Have your team update your plan with information gathered from outside sources—such as the government, the U.S. Small Business Administration, the Department of Labor, bank contacts or vendors—to help manage supply lines, unexpected sources of financial assistance and so on. Document all communications.

The ABC framework is designed to move small businesses forward in a time of uncertainty. After this emergency is resolved, the leaders of many homecare businesses will be more aware of how to consider preparations for other types of business interruptions. Deliberate planning and action may prove to be the keys to building a stronger business capable of withstanding the test of time.

Heather Bain, CPA, CMA, MBA, is the owner of Bain CPA Business Strategies, LLC, a small business management advisory firm in Houston, Texas, and accounting professor for the University of Phoenix there. Bain serves as chair of the Institute of Management Accountants Small Business Committee and program director of the Newspring Business Edge Program.