In the first installment, Yoav discussed the importance of creating a written business plan or a roadmap, on how to quickly and decisively control costs and how to deal with your employees. In this second installment, Yoav will introduce the next steps for saving a distressed company – how to deal with customers, vendors, bankers and tax authorities.
Important Steps To Saving Your Business
When trying to save a distressed company all key stakeholders need to be aligned, and that means talking to people outside the company as well as your colleagues and employees. This can be difficult to do for a variety of reasons, but swallowing your pride and having tough conversations with outsiders is crucial for a successful turnaround. In this era of self-quarantine and business closures, you may find that most people would be more sympathetic to your situation and willing to support your business. Not doing so opens your company to all types of unwanted exposure, the most dangerous of which is the control and flow of news and rumors about your business. With that, I’ll move on to how to address each external stakeholder.
Step 1: Meet (virtually or in person, if permitted) with your key customers
Many times, customers get their information –or misinformation – from rumors. This can make them nervous, leading them to start looking for alternative suppliers. Get ahead of the rumors: inform your customers about your situation and tell them how you plan to correct it; be reassuring, but not deceitful. No one likes to be surprised, and customers will usually cooperate if you keep them well-informed. The road to recovery may be more difficult after a long closure of your business, but the same probably applies to your clients. By working together and seeking the assistance of your customers, you should be able to restart your business.
Step 2: Meet (virtually or in person, if permitted) with your suppliers
Your company’s suppliers are also part of the rumor mill and may get anxious if they think that one of their customers is in trouble. Since it is more likely than not that your suppliers and their businesses were also affected by the quarantine, you should work with each vendor on a payment plan that outlines your specific issues, and expresses how you plan to deal with them. In addition, you should discuss extended payment terms for new orders. You may also consider looking for new suppliers – they may be more likely to give you better payment terms as they may be unaware of your current cash flow difficulties, especially if your credit rating was good prior to the closure. Even if they run a credit check and ask you to pre-pay, that may still be better for your cash flow than working with your current suppliers, who may ask for cash on delivery (COD) and payment toward your old debt. Ultimately, your vendors don’t want to lose a customer so your success matters to them, and they too will usually cooperate if you keep them in the loop.
Step 3: Contact tax authorities
The Internal Revenue Service (IRS) and many individual states have extended the deadline for filing 2019 tax returns and for making various tax payments. For more information, check the IRS website, your state’s tax websites, and talk to your accountant. If you are unable to pay your taxes on time, notify the relevant tax authorities and work out a payment plan with them. The IRS has also extended the payment of employment tax deposits. However, make sure that you pay your employees’ payroll tax withholdings on time – it is a criminal offense to not pay payroll taxes which you have collected from your employees on behalf of the government. In fact, you could be held personally liable and face jail time. Additionally, any 401(k) and health saving account (HSA) withholdings from your employees must be transferred immediately after each payroll to the 401(k) and the HSA plan administrators. Business owners consider not paying taxes or transferring benefits funds more than I would like to admit, so I cannot emphasize enough that this is not an option under any circumstances.
Step 4: Contact your bankers
When talking to your bankers, it is integral to have a face-to-face meeting (in this time of the coronavirus pandemic, video conferencing is also an option, of course). Give them the bad news as well as your action plan. Appear confident and reassuring, and be specific with your request for assistance. Bankers also have skin in the game, so they will cooperate if you are up-front and honest with them.
Following these steps will help you buy time and get your stakeholders aligned with you rather than against you. Having a support network is integral to turning around a distressed business and will keep key relationships intact through difficult times.
In my next installment, I will review some success stories of companies that followed these steps.