With so much change happening in the market, businesses are trying their best to manage the day to day and plan a path forward. But there is only so much businesses can affect when it comes to their financial performance.
Many companies have their attention focused on managing expenses and finding ways to keep costs down, because that’s about all that’s within their power to fully control. However, Phil Hurak, a shareholder at Clark Schaefer Hackett, warns that while survival is critical, companies should be careful not to undermine their long-term performance in the name of short-term savings.
Smart Business spoke with Hurak about how businesses can explore operations to both reduce expenses and begin to plot a path forward.
How can businesses identify cost-reduction opportunities?
Businesses should create a cross-functional team from key areas of operation — technology, HR, supply chain and sales, for instance — to identify issues and opportunities within each of those functions. Then, overlay those findings with the short- and long-term strategic vision of the company, along with current imperatives such as cost reductions or enhanced profitability. This should produce an evaluation that will inform the strategic vision and avoid missteps that could undermine the company’s long-term efforts. For example, it might seem that one easy way to increase profitability in the short term would be to eliminate all research and development. That might bring immediate cost reduction benefits, but it would likely harm the company’s long-term strategic direction. Looking through every option with that strategic vision in mind is going to be important as companies work to responsibly reduce expenses.
How can companies consider the long-term view when the short-term picture is so fuzzy?
Businesses have tended to take a 30-60-90 view, and then consider the good, better and best scenarios as they operate under extreme uncertainty. For example, they’re looking at potential decreases in revenue of between 10 and 50 percent. Whichever reality manifests will drive different decisions and activities. But businesses really don’t know what the future is going to look like from a top-line revenue standpoint. So in the short run, they’re establishing a matrix of options, contemplating the potential impact within each of those scenarios and then outlining plans that would manage the associated expenses and other cost investments for each outcome.
What can tax benefit optimization offer companies right now?
Looking through an income, cash flow or profitability statement, the tax line is often one of the largest expenses companies bear. Certainly, payroll and possibly real estate are significant costs, but taxes can have a profound effect on profitability. Federal income tax; sales, payroll and property tax; excise and state taxes; and others can add up to be one of the largest expenses of an organization. Therefore, tax benefit optimization is an expense line that can and should be actively managed to maximize cash flow and profitability.
For those who were awarded the PPP loans, what should they be thinking about and preparing for now?
Companies now should be looking into how they can prepare the documentation that maximizes the forgiveness of the Paycheck Protection Program (PPP) loan. And there has been some guidance from the SBA around its plans to audit and review loans. While current guidance says loans over $2 million will receive an audit, companies that received loans under that amount will need to substantiate and document how those loans were used to receive forgiveness. Maximizing forgiveness and establishing a process for documentation are most critical for businesses.
In a very short time, there have been changes to every aspect of commerce and communication. No one business or individual can have all the answers as to how these challenges can be successfully navigated. Now is the time to reach out to advisers and work with strategic partners to collectively gather the best available information and develop a plan.
Insights Accounting is brought to you by Clark Schaefer Hackett