Managing Your Business Through Crisis and Beyond
Balentine has advised business owners, families, and family-owned businesses for over a generation. Dr. Adrian Cronje, Balentine’s CEO and CIO, is a 10-year member of Vistage; he is also a member of YPO. Dr. Mark Bell, Head of our Family Office practice, is a former McKinsey consultant and served as the executive vice chairman of a family-owned bank during the Great Financial Crisis. In this article, Adrian and Mark draw on their decades of experience over several market cycles to outline how to manage your business through crisis.
After enjoying bumper growth and profitability last year, many businesses have suddenly been plunged into crisis as a result of the abrupt halt to economic activity called for by the authorities to prevent the coronavirus (COVID-19) from overwhelming our healthcare system. Similar to 2008, there is now likely to be a severe recession. Unlike then, the speed at which this exogenous shock has ambushed business owners has been breathtaking; just a month ago, we were celebrating a continuation of the longest period of uninterrupted economic growth in our history and 50-year-low unemployment rates. The capital market indicators we often urge business owners to monitor (see Adrian’s article “Are Recession Red Lights Flashing?” for more information) went from signaling a period of continued growth to recession in just days. This sudden shift happened as stock, bond, credit, and commodity markets convulsed and discounted the reality that the economy was screeching to a halt for an indefinite amount of time. Typically, recessions give a 12- to 18-month lead time of an economic downturn, allowing business owners plenty of time to make tactical adjustments to their strategic plan.
Balentine has a unique vantage point during this unprecedented period. For over three decades, we have advised business owners and served their wealth management needs. We understand that the health and outlook of a business are central to providing a holistic investment strategy in pursuit of achieving families’ goals. We are also an independently owned firm and understand the unique emotions, challenges, and opportunities of managing a business through a crisis.
Crises bring both clarity and opportunity. They test the resiliency and adaptability of your business and people to manage through a sudden period of stress. For those businesses able to bend and not break, they present a golden opportunity to accelerate “skating to where the puck is going,” as legendary hockey player Wayne Gretzky famously said. In other words, they highlight how you can update your strategic plan to capitalize on a changed post-crisis world, putting your business on a trajectory for even more significant growth and profitability. While today’s healthcare pandemic is tragically inflicting human suffering on a staggering scale, business owners should not overlook the opportunity to make decisive changes to their businesses that they otherwise may have deferred or avoided during good times.
Specifically, there are four key areas for business owners to consider, just as we are doing for our business at Balentine today:
- Build Resiliency. Increase the resiliency of your business model to manage through the crisis.
- Apply Best Practices. Apply lessons from the Great Financial Crisis (GFC) to 2020’s Coronavirus Crash.
- Accept Aid. Take advantage of the significant government assistance available to businesses through the CARES Act.
- Be Strategic. Position your business for a world after the immediate crisis subsides.
Below, we outline each of these critical areas and explain what they may look like in your business.
Resiliency is the Currency of Crisis
- First, and most importantly, take care of yourself. As a leader, you need to be mentally and physically present, and effectively manage your stress. Find time to rest and recharge in whatever way works best for you. Many of our clients are benefiting from using the variety of mindfulness apps that are available today. Others are taking the time to talk to family or doubling their exercise routine. The heavy burden of responsibility for so many people and families is a stress that only business owners appreciate. Find a routine to control your negative emotions during the long hours of exhaustion.
- Establish a “nerve center” to facilitate consistent, daily communication with all employees, especially since everyone is working from home in isolation during the current crisis. Increase the cadence of management meetings to regularly check in with your key leaders so that you don’t make decisions in a vacuum under duress.
- Take Vistage legend Charles “Red” Scott’s first business cardinal to heart: “Don’t run out of cash—no matter what.” Model how much runway you have to keep your business going with cash on hand and access to credit lines, and stress test a base-case and worst-case scenario. That way, you can unemotionally and proactively tease out the priority of decisions that you may have to make if the crisis takes longer to subside. In so doing, you will soon identify the “fat” in your budget when you ask yourself what non-essential expenses you can cut to increase your runway to get to the other side of the crisis. A little success in good times can create a lot of unnecessary overhead! At Balentine, we run our business like we run our investment portfolios with an emphasis on ensuring that a quantified multiple of spending needs/expenses is kept in cash at all times to get through crises without disturbing our strategy or permanently impairing capital.
- Deploy as many resources as possible to serving your clients and customers; they are your most precious capital. Double down on supporting those on the front-line, helping them get through the crisis.
- Care for your leadership team and employees, along with their families and support networks. During times of turmoil, your team needs to be aligned on priorities, feel valued and empowered, and have unwavering confidence in you as their leader. Your army, when inspired and assured, is a terrific asset, especially during these difficult times. It’s okay to ask a lot of your team. Push your people to step up. Make firm-wide priorities well-known, put the pressure on your team to show up in a big way, and then move out of their way and let them rise to the challenge. It’s important during these times to also show your gratitude; it will go a long way. And encourage your team to rest and recoup for the next sprint. Above all, make sure they know you will see them through this challenge. While it’s incredibly stressful and isolating to run your business—and even more so during times of tribulation—your team needs your steady hand now more than ever.
- Use this moment to test your disaster recovery and business continuity plan, and evaluate how smoothly you’re able to run your business remotely. We recommend trying this even if you are considered an “essential” business that can stay open.
- If you run a manufacturing firm, take immediate steps to stabilize your supply chain.
Draw from the Lessons of the 2008/09 Crisis
- As noted above, organizations need visible leadership. Unfortunately, there were too many ostriches with their heads in the sand in 2008. It is harder to be an ostrich in this environment since everyone has been hit on all sides at once, but pretending things have not changed, or that your business will not be affected, is not an option. Acknowledge in plain language that you understand where you are and that you are responsible for what is going to happen, focusing on what you can control.
- Remember that you can never over-communicate in a crisis, especially when it comes to your employees, customers, lenders, and investors. Communicate directly, clearly, and with empathy. Be authentic and transparent about both the bad news and the good; it builds trust with your team. Don’t play “catch up” in a reactionary way: events are usually ahead of where they seem.
- The best time to ensure access to lines of credit is when the economy is strong, but crises are when you want to over-communicate with your bankers. They hate surprises. See Mark’s new article, “How to Communicate with Your Lenders and Investors During the COVID-19 Pandemic,” for more information.
- Make hard decisions quickly and decisively. Make bold decisions driven by data with clarity and confidence. Don’t emotionally “shoot first and ask questions later.”
Take Advantage of Government Policy
The government has acknowledged the role of small business as the lifeblood of job creation and economic activity in our country—take advantage of that.
- Fiscal stimulus: Small Business Administration (SBA) relief. If your business has fewer than 500 employees, you qualify for the aid being administered through the SBA rails. See Mark’s article entitled, “Opportunities for American Small Businesses in the Wake of the COVID-19 Pandemic” for full details, but the highlights include:
- Stimulus Assistance (7(a) program): The government is providing $350 billion of capital to small businesses through the crisis and as a mechanism prevent layoffs. The loans are available for both for-profits and non-profits and can be up to $10 million per borrower, with a full government guarantee, no fee, a 25-year amortization, and rate of prime + 1%. Most importantly, you can borrow eight weeks of payroll and have these expenses forgiven.
- Disaster Assistance (7(b) program): A $2 million loan at 3.75%, with the first payment deferred for 11 months and a 30-year amortization schedule. It is a nearly unsecured loan (in that it can “sit behind” other loans), and you can use it for general purposes.
- The banking system will administer the aforementioned programs. Go to your bank and inquire. Get in line immediately, as it is already long, and bankers prefer existing customers. While you can borrow more than eight weeks of payroll, rent, and expenses, there is the possibility of a “test” being applied in the summer. Essentially, any portion of the loan you do not use for payroll expenses would become a true loan, versus the payroll/expenses portion which would be forgiven as a tax-free grant. At the time of writing, economic data and political winds point to the strong possibility of further stimulus, but that does not mean you should delay applying for the current programs today.
- The Federal Reserve has lowered interest rates to zero to help ensure capital markets function smoothly; it is expected to keep rates at this level for the next several months. Re-evaluate your capital structure and optimal debt-to-equity mix while borrowing remains cheap. Now is the time to lock-in rock-bottom interest rates for a long time.
Position Your Business for a Post-Crisis World
- People are the most valuable asset of many businesses. Crises allow the cream to rise to the top. It is a perfect time to re-evaluate whether you have “the right people in the right seats” of the bus, as Jim Collins writes in Good to Great.
- Remember that your competitors may be feeling the stress of the crisis, too. Is now the time to blitz their best people and attract them to your business and culture?
- Dust off your strategic plan and reforecast. How should you reprioritize new initiatives to take maximum advantage of a post-crisis world? How will your people, clients, and customers behave differently? How will the cost of inputs and your ability to command maximum pricing power change to maximize your underlying earnings power? Don’t let tactics go in search of a reset strategy.
- Lean into technology spend, especially in the areas of marketing and brand building. For example, the power of webinars to bring clarity to a discombobulated world can differentiate who you are.
- For manufacturers, reinvent your supply chain to ensure disruptions experienced during the current crisis do not happen again.
- In all things, be prepared to come out the other side tougher and leaner, but still able to compete and win in what will be a more competitive landscape for fewer customers.
- Think in advance about your pricing power and strategy if inflation picks up as a result of all the “free money” and stimulus the government is providing to give the economy the lifeline it needs.
At Balentine, we are actively working with our business owner clients to assist them in managing through this crisis.
We have described some of the common themes emerging from our conversations in this article. The bottom line is that uncertain times call for real leadership. Each crisis is different, and this global health pandemic is unique. Communicating with your team, your employees, your clients and customers, and your capital providers is vital. They want to see that you have a firm grasp on the situation and a plan for the multitude of scenarios that may unfold. The most important plan, the ace in your back pocket, is the steps you can take to not only get through this crisis, but to position your business to thrive when the dust settles. While it remains unclear when it will happen, the time will come, and you will be there ready to rise to the occasion.
Much uncertainty exists around the coronavirus and the ripple effects of this pandemic. Balentine will continue to assess new data and provide timely information and insight around current market volatility and economic impact. Visit the dedicated resource page on our website, “Latest Market Updates Amid the Coronavirus,” for a consolidation of the insights and resources we encourage investors to read.
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