Second Wind COO Laurie Mikes spoke with our good friend, financial consultant Vince Dong, whom many of you know from attending our Agency Financial Management seminars and our SAIL conferences. Vince offered some valuable advice in a #GoodAdvice video for agencies trying to get a handle on financial issues arising from the COVID-19 shutdowns. Here is a Vince’s crash course in agency financial management in a crisis.
The Hurry-Up Offense
When the pressure is on, planning is everything. Vince suggests thinking of this in terms of football: when you are watching the clock run down and need to score, you execute a “hurry-up offense.”
What must you do for the next ninety days? Where should you focus financial management energies? Here are steps you need to take between now and June 30—we have no idea right now how this crisis will unfold over a longer term, so narrow your focus.
Pull financial statements right now:
- What will you be collecting in the next two months (receivables)?
- Are any clients who owe you money in trouble? Has anyone indicated invoice payments may be delayed? Can you invent payment with payment plans?
- What do you owe vendors that you must pay? What can you delay, and by how much? Talk to key vendors so you are all on the same page.
- Salaries against AGI: Are your people costs in line with best practice ratios? Your goal is to try not to cut people. Layoff should be the last resort. This is going to be harsh but short-term crisis; you don’t want to lose people you’ll need when the crisis passes.
Free cash is anything not including media and vendor dollars (out-go), i.e., your available capital.
- Look at overhead: What can you conserve, delay or suspend?
- What expenses can you cut or suspend right now?
- Call on your managers to discuss unprofitable service areas, or other areas where you can make operations adjustments.
- If the situation worsens, ask employees what they can think of that could help keep the agency moving forward. Some may volunteer to take pay cuts or reduce hours; other may offer suggestions that you and your managers overlooked.
What About Payroll?
Try to wait until May before making salary/payroll cuts. That does not mean you shouldn’t at least think about who you might have to cut should that become necessary. But your goal right now is to avoid having to lay people off at all. That means you need to step up, as principal, and make the first sacrifices. It’s your business, after all.
Principals should be the first to cut salaries; if they take the greatest benefits, in a crisis they should also take the largest risks. Principals should think hard about whether to draw on personal savings to support the business for a short period. This depends on your personal philosophy; your willingness to adjust lifestyle choices to put your salary into supporting the business; and you desire to keep the agency alive.
Making personal sacrifices also depends also on whether you already have a cash reserve vs. having an agency that runs day-by-day financially. But your willingness to put your own salary on the block before your people’s payroll is a leadership choice that will resonate with employees. It could also pay off with increased trust and a stronger culture after this crisis has passed.
Communicate with Your People
We are all dealing with elevated stress and anxiety. Don’t make your employees worry whether they will get up tomorrow and not have a job. Share information on reduced collections and actions you are taking to cut expenses. Let them know if you are approved for an SBA Paycheck protection Loan. But also reassure employees: affirm that payroll cuts will be a last resort. Should cuts become necessary, forewarn people how that may impact them—reduced hours, reduced pay, rolling furloughs, etc. What steps will you take before cutting people? Your goal is to have a business to revive when this is over. Your people are key to achieving that.
“Cooler heads must prevail,” Vince said in closing. Every day will bring challenges, and every agency’s experience will be unique. Above all else, stay calm and work the problem.
Our thanks to Vince for taking time to share his advice. He also posted a message in Second Wind Forums inviting our members to contact him directly should they need advice.
Watch for more #GoodAdvice videos on our COVID Help & Resources page.