This is a blog post by fellow EOS Implementer, Ken DeWitt.
Many of my clients are downright angry about America’s Coronavirus shutdown. Initial reactions include disbelief, anger at the news media or politicians, and frustration with the perceived gullibility of large numbers of people who are giving in to panic. Logic is out the window, and fear is palpable. I’ve been checking in on my current clients more frequently since this crisis began, and they always ask me what I think about the situation. Simply stated, I’m a realist. Regardless of how we got here or who is responsible, we are here: facing a “black swan” event that is disrupting our lives, shaking the confidence of family, employees, and communities, and will imperil many of our businesses.
But economically speaking, we’ve been here several times before. While this event might seem unprecedented, what we might go through is nothing new.
“Chinese imports don’t affect my supply chain, so I’m not worried.”
A lot of optimists are unconcerned because what happens with China has no direct relation to their business. But the possibility of an economic recession is real for everyone. NOW is the time to be prepared with a survival plan, whether that happens or not.
In the last recession, the businesses that got slaughtered were the ones who delayed critical actions; the doomed “optimists” in the Stockdale Paradox as described by Jim Collins in Good to Great. Collins explains it in this video, but simply stated, if we are to survive, we must:
- have faith that we will endure through hardships and will prevail in the end, and
- hold to this faith without wavering, while still confronting the brutal realities of our current situation.
In short, DENIAL IS NOT AN OPTION.
For many years before I discovered EOS®, I was a practicing turnaround professional. I took broken, distressed companies and helped them make tough, survival-minded decisions for recovery. You may be a healthy business now, but you will have to make those same decisions if you want to remain one through uncertain times.
Here is my do-it-NOW recession-planning checklist:
1. Stay focused and completely disciplined.
Exercise the kind of discipline you would have to exercise if you were in a turnaround situation. Since you run on EOS, you know what to be disciplined about. Everything else is “just an issue” you must live with, change, or end. Whatever happens, stay focused! DON’T do this:
2. Make contingency, scenario, and cash planning a recurring IDS topic in your senior leadership Level 10 Meetings™ EVERY WEEK.
My fellow EOS Implementer, Victoria Cabot, shares key questions to ask in this article on LinkedIn. Cascade messages as necessary to employees, departments, customers, vendors, and banks.
3. Prepare to be the leader your company, family, and community need.
Read my recent memo to Visionaries & Integrators on how to be a leader in a crisis. Ensure that every leader in your company hears this message and is prepared mentally. Practically speaking, consider production cross-training now so you’ll be prepared if significant parts of your frontline cannot not show up due to illness. Management and sales may be called in for an all-hands-on-deck situation to get production done.
4. Decide in advance – NOW – how much you can do to help your employees through the crisis.
What is your sick leave policy? How can you extend that? Can they take vacation time after sick time? What can you afford before having to make any temporary pay changes or reductions in force? Be generous, but don’t leave it open-ended.
5. Prepare an alternate Accountability Chart for various contingencies.
When we planned your growth, we looked forward six to twelve months and determined key functions, who is critical to your success, and whether each seat was filled with a Right Person. First, do your People Analyzers now and know who is a Right Person in a Right Seat. Second, prepare an Accountability Chart to reflect the structure you will need IF your business revenue declines, for example, by 20%. Do as many iterations as you need to help with your personnel planning.
6. Get good at weekly cash forecasting.
We EOS companies think in 90-day periods — 13 weeks at a glance in our Scorecards. That’s short term. Long term is beyond 90 days. Download this working cash flow forecasting tool and charge someone to do a 13-week rolling cash flow projection. (Do a monthly version for your personal/family finances.) At all times, know how much cash you have, how much you will need, when you will need it, and where it will come from. Examine your lines of credit, and ensure they will be there for you. Review possible personal shareholder cash injections.
7. Manage your accounts payable.
In my turnaround days, every AP list had a total column, plus three additional columns: (1) vendors we MUST pay on time, (2) vendors who are strategic partners, and (3) everyone else.
- “Must-pays” include employee wages, payroll taxes (NEVER be late on those), and anyone else who could shut your business down if you didn’t pay. It also includes the small, talkative ones in your community who would gossip about you if you didn’t pay.
- “Strategic partners” are vendors who your business is important to, and you know each other well; they have a vested interest in you succeeding. Extended terms can be negotiated here, and eventually, debt principal deferments can be negotiated with banks.
- “Everyone else” is any vendor that is easily replaced by another supplier, and we may have to delay payments to this group. Brutal? Yes, but we may be talking survival here. Learn more about AP management here.
8. Watch your accounts receivable with new diligence.
Savvy customers will be classifying your receivables in the same way you will manage your payables, and likely will delay payments to you. Some may be on financial thin ice, and you risk full loss on receivables from them. Decide NOW on how much credit you will extend to each customer, and develop a communication strategy for each stage.
9. Watch your Scorecards with new diligence.
As an EOS Company, this is your early warning system that will forecast any trouble. “Drop it down,” missed goals will need to be IDS-ed as soon as possible, and your leaders will need help driving your key measurables as well as possible under the circumstances.
This will be a very fluid situation to say the least!
Factor all of the above into your 13-Week Cash Flow Plan and present it weekly in your Senior Level 10. Help your accountant and employees see that “approximately right and fast” is acceptable; “slow and perfect” is NOT. And if you need a contract CFO to do your forecasting, contact your EOS Implementer for help finding one. Many Implementers know CFOs who will be happy to assist you with developing a sound plan forward without a long-term engagement.
In closing, I’d like to share something C.S. Lewis said to help us all gain some much-needed calm and perspective on the current situation. Read this, replacing “atomic bomb” with “Coronavirus,” and you’ll see what I mean.
In one way we think a great deal too much of the atomic bomb. “How are we to live in an atomic age?” I am tempted to reply: “Why, as you would have lived in the sixteenth century when the plague visited London almost every year, or as you would have lived in a Viking age when raiders from Scandinavia might land and cut your throat any night; or indeed, as you are already living in an age of cancer, an age of syphilis, an age of paralysis, an age of air raids, an age of railway accidents, an age of motor accidents.”
In other words, do not let us begin by exaggerating the novelty of our situation. Believe me, dear sir or madam, you and all whom you love were already sentenced to death before the atomic bomb was invented: and quite a high percentage of us were going to die in unpleasant ways. We had, indeed, one very great advantage over our ancestors—anesthetics; but we have that still. It is perfectly ridiculous to go about whimpering and drawing long faces because the scientists have added one more chance of painful and premature death to a world which already bristled with such chances and in which death itself was not a chance at all, but a certainty.
This is the first point to be made: and the first action to be taken is to pull ourselves together. If we are all going to be destroyed by an atomic bomb, let that bomb when it comes find us doing sensible and human things—praying, working, teaching, reading, listening to music, bathing the children, playing tennis, chatting to our friends over a pint and a game of darts—not huddled together like frightened sheep and thinking about bombs. They may break our bodies (a microbe can do that) but they need not dominate our minds.
— “On Living in an Atomic Age” (1948) in Present Concerns: Journalistic Essays