This article first appeared in the May 2020 edition of Building Savvy magazine, San Antonio's premier homebuilding industry publication.
While I wish I could be the bearer of good news, reality informs us that the panic over the COVID-19 virus will kill many American businesses. Yours could very easily be one that doesn’t make it. The lasting economic impact may be greater than the 2008 mortgage crisis, which resulted in massive job losses and a global recession. But you don’t need to take my word for it- flip on the TV and it’s 24/7 doom and gloom.
Since the outbreak of the novel coronavirus in Wuhan, China in late December 2019, panic has spread worldwide. Before you knew it, the stock market had lost all of it’s miraculous growth since 2016 and Federal, state and local officials stepped in to take action to protect the vulnerable from the virus, resulting in widespread shutdown of day to day life.
While we cannot totally control the spread of the virus, business owners can take reasonable steps to ride out this storm.
1. Install a succession plan
Many construction firms are small and family-owned. While times are good, no one thinks about replacing key employees (who may be family members). However, as many small businesses know, each employee wears multiple hats. Lose one of them to illness or death, and your business is on its knees. What you can do today is set up contingency plans for succession in case the CEO/owner is incapacitated.
Also, designate key employees so you can furlough non-essential employees to stop the spread of illness. For those key employees, have backups trained so they can fill those shoes if needed. Key employees would be accounting and purchasing people, land acquisition/legal team members, and possibly others. Know who has the keys to everything, and know how to replace them (if need be) in a hurry.
2. Refinance business debt
One the the most striking actions taken in the aftermath of the COVID-19 outbreak was the Federal Reserve dropping interest rates to zero. This was a major signal that the economy is teetering. While you won’t get a zero interest loan from your bank, rates in general will be lower. If you have buildings or equipment that were financed a few years ago, take a look at your terms. Now might be a great time to cut your interest payments, add some funds to cover lost revenue and daily expenses, or reduce your monthly outlays for debt service. It all depends on your business’ situation, but managing your expenses could be crucial in the next 6-18 months.
3. Call your vendors.
You’ve got a ton of materials on order, multiple jobs in progress, and boom- the bottom falls out. Maybe you aren’t closing contracts as fast as you have been. Maybe your buyer interest has evaporated. With an economy as weak as ours right now, everyone is feeling the bite. However, don’t duck your suppliers and vendors. They are most likely to understand your situation, as you are not the only person they do business with.
A simple phone call to check in on the progress of your order can provide a lot of detail in how your vendors are managing their own day to day business. For example, if your lumber vendor is under a quarantine order, you are likely to have to wait for your 2x4s a little bit more than usual. You can’t know how your vendors’ business is being impacted without reaching out. Plus, building bridges during hard times will leave a lasting impression on your vendors. See if you can delay or modify payments. It’s all about person to person connections.
4. Cut your expenses.
We have to accept the possibility that the economy could struggle for a year or more. Builders have been living pretty high on the hog for the past couple of years, with record breaking home prices and contracts closed. If you were around in 2008, you knew that this wasn’t going to last forever.
Now is the time to cut the unlimited data cell phone plans for non-essential personnel. Put off buying that new F250 for your superintendent. Maybe dial back your marketing budgets in the more expensive channels. While it may seem counter-intuitive, your customers are going to be waiting out this crisis too, and your marketing dollars now will likely be spent on passive onlookers who aren’t going to convert to buyers any time soon. If at all possible, avoid layoffs of veteran personnel- a little bit of loyalty now can go a long way when the industry comes back to life. Ask for continuances on large bills- see if you can forgo loan payments for 3 months and tack them onto the end of your loan. Get creative and stay afloat.
Do you have business saving tips that you learned during the 2008 crash or other economic hard times? Share them on Building Savvy San Antonio’s Facebook page! We’re in this together.