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DSM Forward How to Get Right Side Up When Your Business is Upside Down

Business Path Forward

The Greater Des Moines Partnership DSM Forward webinar series offers insight on moving the Greater Des Moines (DSM) region forward in the aftermath of the COVID-19 pandemic. As plans are made and businesses reopen, The Partnership has put together resources for employers at DSMpartnership.com/DSMForward.

As social distancing policies enacted during the COVID-19 pandemic loosen in Iowa, businesses are beginning to re-open. Jonathan Porter, David Ling and Drew Larson offer some insight into what the re-opening process has looked like in their industries.

Advice from an Accountant

Jonathan Porter, senior manager at McGowen Hurst Clark Smith, began the webinar by emphasizing the importance of compiling a complete financial picture of your business. Porter recommended a few accounting programs to assist and provide some guidance in the process. Regardless of whether you are using accounting software, accurate financial statements allow business owners to make informed decisions and complete various financial analysis. It might be wise to seek out a professional accounting firm to offer advice and guidance once financial statements are in order, including these three financial analysis Porter recommends.

Break-Even Analysis

Complete a break-even analysis to get an understanding of how much revenue is needed to cover fixed costs (break-even point).

Burn Rate Analysis

Complete this high-level analysis to get an understanding of how quickly a business will burn through cash reserves. This can and should be reviewed often.

Cash Flow Projection

Complete a cash flow analysis to get an understanding of what future cash will look like. Cash is king for small businesses, so it’s important to know how it will flow.

Advice from a Banker

David Ling, VP and business banking manager at Bankers Trust, continued the conversation by talking about how small business owners can work with their bankers. These conversations can be difficult to have, but Ling emphasized they do not indicate failure, rather they are the mark of a prudent and responsible business owner. Ling recommended the four-pronged approach below.

Know Your Reality

Ling emphasized the importance of being aware of your current financial situation, what is causing any impacts being seen on financial statements and understanding how your customers are impacted by the overall environment. Small business owners who are aware of this information should determine their best, worst and most likely case scenarios in moving forward.

Communication is Essential

For small business owners, Ling recommends calling your banker early and often. Don’t wait for worst case scenario. It is likely a banker can help develop solutions or options for businesses, but they need the time to figure those plans out.

Be Open + Honest

Ling doubled-down on the importance of straightforward communication with bankers, presenting a realistic current situation and accurately communicating individual needs.

Manage Expectations

If an agreement is reached on how to move forward, Ling says bankers will provide three action items in return: • More communication • Additional/increased reporting • Managing to financial benchmarks

Advice from an Attorney

Drew Larson, an attorney at BrownWinick Law, wrapped up the conversation by discussing what advice lawyers will offer after business owners have fully explored options with both accountants and bankers. Larson began by providing general information on what will happen if it becomes necessary for the business to close. The most important aspect of this conversation is who gets paid and in what order.

Secured Creditors

These creditors have a mortgage or security interest in the assets of the borrower (the “collateral”) and generally include banks and credit unions.

Unsecured Creditors

These creditors do not have any claims to collateral and typically get what is left over after the secured creditors are paid. Unsecured creditors are made up of employees and suppliers/vendors.

Owners

Owners are often secured by mortgages on home or other real estate assets.

According to Larson, the next conversation an attorney will have with the business owner is exploring any option for remaining open. This includes:

  • Reducing costs (such as loan extensions, layoffs/salary reductions, etc.) sooner rather than later
  • Borrowing more, if possible and agreed upon with your banker
  • Negotiations with creditors in order to maximize the value of collateral in sales to cover all debts and settle on personal guarantees
  • Foreclosure actions for default loans
  • Bankruptcy to discharge the debtor from further collection and payment obligations

All of the webinar speakers emphasized the importance of having these conversations early and often, preferably with a professional familiar with the individual operations of the business. Social distancing restrictions being lifted is a positive for the state’s economy but does not mean a swift return to business as “normal” is imminent. There is still a lot for business owners to consider and work through as part of the process.

See the entire webinar below:

 

Webinar speaker companies outline their COVID-19 resources at the links below:

You can count on The Partnership to continue to share accurate and fact-based updates as well. See more on COVID-19 here.