While the remodeling business has survived several significant recessions in the last 50 years, the one we are dealing with now due to COVID-19 certainly seems different. The situation is subject to change as time moves on, but for at least a few months most retail businesses and restaurants were closed and many laid off a significant number of their employees. Kitchen and bath design firms have been no exception to this pressure from the pandemic.
Although the federal government passed multiple economic-rescue packages and more may be on the horizon, there has been little clarity as to exactly how they are going to work. The goal has been to help small businesses and their employees, but there’s been a great deal of debate about whether that has been accomplished.
If these programs worked according to plan, then you are still in business and have been able to keep your employees on your payroll while staying on top of your rent and utilities payments. It’s also quite possible that many of your competitors have not been able to weather this challenging storm. Given that circumstance, there’s still a long, hard road ahead, especially now that the coronavirus is spiking in many states.
This month we’ll examine some tools and techniques that can be utilized to deal with challenging times such as these. We’ll look first at analyzing what the true status of your business is and what steps you can take to improve those circumstances, along with the impact that you – as the leader of your business – can have on your customers, employees and other company stakeholders.
Where Do You Stand
Hopefully, over the past few years when business has been strong, investments have been made into your business so that you’ve entered the current downturn with your displays up-to-date, your tools and equipment in good shape and a “rainy day” fund with a substantial balance and a good relationship with your bank. Regardless, it is critical at this point in time that you sit down and figure out exactly where you stand.
If your area is still in a lock down or phased reopening mode, your staff may be able to perform various home repairs in order to keep some cash flow going. Additionally, you need to stay up to date with what government assistance programs might be available to your business. It’s likely that you have been working with your bank to receive some assistance, and it’s essential that you stay in close contact with them as well as follow notices on the SBA website. Your bank is probably overwhelmed with requests from other small businesses, so it’s important to remember that it will be the “squeaky wheel” that gets the attention.
Assuming that your firm took out a loan under the government’s Payroll Protection Program (PPP) and still has your employees on board, your employees should have been making contact with former clients, letting them know what services your firm has to offer and that your company will still be around when the current health crisis has ended. Another thought is to put your employees to work doing some sort of community service, rather than just sitting home waiting for the pandemic to pass. It’s an important opportunity for additional visibility.
Where Should You Go
To get a handle on what is in store for your business, you need to be able to project what revenues are expected in the short term and the expenditures that go along with them. At this point, you should be able to determine what revenue your firm might be able to generate and what help might be available from government programs.
Computer spreadsheets allow you to perform some “what if” exercises based on your financial statements. Starting with your most recent annual income statement, create a “pro-forma” monthly income statement that will allow you to manipulate revenue assumptions and various expense options. We will not get into the mechanics of spreadsheets, since it’s assumed most of you are familiar with using them.
Once you’ve created your pro-forma income statement on a spreadsheet, link the cells representing the variable expenses to either another spreadsheet containing, for instance, a list of employees and their salaries and wages, or develop a formula for that cell based on revenue (i.e. gross profit, commissions, etc.) Once you’ve put this tool together, you can see what the effect of various revenue assumptions will yield. Again, the assumption is that, by the time of publication, the revenue you can expect from the various government support programs will be somewhat defined.
Inputting the level of revenue that you expect from all sources into your spreadsheet will give an indication of the profit (or loss) situation if you do nothing. If you find this yields a loss position, you can try different strategies to bring it back to at least a break-even point for your business. Are there expenses that can be reduced or eliminated? Will it be necessary to reduce staff and, if so, will that be sufficient to break even?
Initial guidelines for the Payroll Protection Program indicated that there would be loan forgiveness if you maintained employees on your payroll for eight weeks, and that possibly has been extended, so it’s important to weigh the cost/benefit of any payroll reductions. Another factor to consider is whether there will be a significant economic rebound as predicted and the wisdom of keeping your staff together to be able to take advantage of that when things begin to return to normal.
Do not underestimate the role that you play as the leader of your business and your staff. Employee morale can play a huge part in how a business fares in troubled times and your staff will look to you for clues as to how to face such times.
Be as open and honest as possible with your staff regarding what challenges your business is facing. Discuss with your team how to improve revenues and cut expenses, and encourage your sales staff to mine their referral base. It’s important that your staff feels that they can have a meaningful hand in finding a solution to the current business challenge.
Lasstly, give yourself a pep talk concerning the economy and the challenges that you and your business are facing. While there certainly are some grim statistics concerning residential construction, home sales and general economic activity, a steady diet of cable news is not the best formula for creating a positive attitude, and a positive attitude on your part is essential if you want to keep your staff morale up. ▪