The COVID-19 pandemic began almost seven months ago. Its impact has been global, and no one knows when or if it will go away or be resolved. The virus has changed the way we do just about everything and left us with daily concerns about testing, hospitalizations, social distancing, face masks, and hand-sanitizing.
While the social impacts of the pandemic have been life-altering, businesses are far from being immune. Global markets have shrunk for some and expanded for others. Customer demographics have changed drastically, as well. The hospitality and travel industries have been severely damaged as social contact has been restricted. Some manufacturers have been hurt by a lack of resources and/or customers, while others have flourished as they produce products necessary to stem the pandemic. Every industry has been impacted in either a positive or negative fashion – negatively for most – and there is every indication that there will be the emergence of a “new business normal.”
Despite the drastic changes that have occurred due to COVID-19, however, some fundamental business practices remain. These include data collection and financial reporting. Revenues and expenses still need to be recorded and reported; taxes still need to be collected and remitted. Moreover, profits and losses are as important today as they were pre-pandemic. Despite the massive upheaval brought on by the virus, accounting and financial reporting remains unchanged, raw data aside. With all of these changes in mind, we have assisted our clients with the development of recovery plans.
Addressing a Range of Pandemic Impacts
At Tom Vignali CPA, Inc., we have developed numerous blogs to address various financial and business management issues. All of these blogs can be accessed on our web site at https://tomvignalicpa.com/. However much we feel that each blog provides pertinent advice, during these trying and critical times, we wanted to highlight several that we think will be most helpful to our clients as they develop recovery plans.
To set some parameters, let’s assume that your business has been negatively impacted by the COVID-19 pandemic. This might mean a partial or total shutdown, loss of revenues, a lack of operating capital, etc. Depending on your type of business and/or the extent of the economic damage, you might require more extensive guidance than this blog is designed to offer, and if so, we can assist you in that assessment and process. The assumption in this blog is that you are capable of operating, although at a significantly impacted level. For those fortunate businesses that have not experienced a negative impact, these guidelines still apply, and although you might not need a recovery plan, it is still critical that you use these guidelines to maintain financial and operational viability.
Developing a Recovery Plan
You will need to develop an operational plan that addresses all aspects of your business. This should include an overview of products (costs and pricing), services (costs and pricing), labor costs, general and administrative (G&A) costs, accounts receivable (A/R), accounts payable (A/P), and fixed and variable operating expenses. Once you have this information in hand, you should:
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- Create a cash flow projection with time lines for all aspects of your business
- Establish communications with key staff members to assess the continuance of existing products/services or potential changes
- Establish and maintain communications with your vendors and customers regarding projected payment plans
- Revisit your operational plan with key staff members on a frequent basis to determine compliance with your projections or corrective measures/changes that need to be made
- Establish and maintain communications with your industry peers, support groups, business assistance programs, advisors, etc.
Every dollar spent by your business MUST be designed to attain or maintain continued financial viability. This is not a time for speculation unless there is a guaranteed return on investment. In order to accomplish this, we have the following basic guidelines which you can use to develop your plan.
Importance of Accurate Financial Data
Financial data needs to be accurate and up-to-date, and you should have real-time access to all aspects of your operation, including products, services, costing, profits, and operating expenses. If this is something that was not in place before, now is the time to make sure you have a process to ensure timeliness and accuracy of financial information. We recommend that you use this data in conjunction with the other issue areas listed below to develop a cash-flow projection to outline your needs, goals, and objectives.
We recommend the following blogs to assist with this process:
Determine Labor Expenses
If you bill for labor, it is critical that you charge enough to cover actual labor expenses and contribute to G&A and profit margins. Calculating the utilization rate is a critical factor in this regard. If you don’t bill for labor, it is critical that you make the best use of each employee’s time. Utilizing our Labor Burden Calculation Tool will allow you to determine and reassess the best use of labor in either circumstance.
We recommend the following blogs to assist with this process:
What Are Your Product Costs?
How you price your products or services is critical. Knowing what your actual costs are and knowing if you have obtained the best costs available is essential. Are better and/or lower-cost products available? Do some research.
We recommend the following blog to assist with this process:
Stay On Top of Accounts Receivable
Accounts receivable will most likely continue to be a major problem. Your customers have likely been negatively impacted by this crisis and are experiencing the same cash flow shortages that you might be. Establishing open lines of communication with them is critical to being able to forecast A/R collections. Additionally, creating incentives might increase prompt payments.
We recommend the following blog to assist with this process:
Forecast Your Accounts Payable
Accounts payable is another matter that merits serious consideration. Just as some of your customers might have problems paying their bills to you, you may have problems paying some of your bills to your vendors. Establishing open lines of communication with your vendors is critical to being able to forecast A/P payments. Smaller and more frequent payments might be one alternative; extended terms may be another. In some instances, converting payable amounts into a longer-term promissory note might be advantageous.
We recommend the following blog to assist with this process:
Questions? We’re Here to Help
These are just a few basic guidelines that we feel are necessary to recover from impacts caused by the pandemic. At Tom Vignali CPA, Inc., we can assist with any or all aspects of these guidelines. We have already helped a variety of clients in developing a recovery plan specific to their industry.
If you would like to further discuss this issue or any other accounting issues, don’t hesitate to contact us at: Tom Vignali CPA, Inc.
Contact Us:
Thomas W. Vignali CPA Inc.
118 Point Judith Road
Narragansett, RI 02882
T: (401) 415-0798
tom@tomvignalicpa.com
www.tomvignalicpa.com
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