Finding opportunities, identifying risks in global trade

There has been softness in global trade recently, for obvious reasons. U.S. exports in 2020 were down about 14 percent compared to the previous year, and imports were down about 9 percent. That broad-based contraction is going to impact all businesses and pull everybody down to a degree.

However, the exact opposite is being forecasted for 2021. The International Monetary Fund expects the global economy to grow this year by over 5 percent, which would be a significant reversal.

“We could go from a year where trade was really in the doldrums to having a record year in 2021,” says Jim Altman, Middle Market Pennsylvania Regional Executive, Huntington Bank.

That should encourage businesses that engage in cross-border trade, and those considering, to look ahead for opportunities, but also take steps to mitigate potential risks.

Smart Business spoke with Altman about the factors affecting the global trade environment, trends to watch and risks to consider in the new year.

What are the political factors affecting U.S. global trade?

Over the past few years trade tensions and the surrounding rhetoric became quite sensational. There are issues that, if resolved, would benefit the U.S. and U.S. companies. The broader impact of the trade policy coming out of the federal government, apt but applied in a less-than-ideal manner, has created challenges for U.S. companies, particularly those importing and exporting from China. It’s created an effect that everyone is going to feel.

There are some concerns but also some favorable expectations associated with the incoming administration in this regard. A continued focus on improving the U.S. position in global trade, in general, from a fairness perspective, is expected. And China is likely going to remain a focus. However, there could be a fundamental shift in how the U.S. deals with China, moving from a unilateral to a more multilateral approach. Trade alliances could be strengthened, in particular with Europe and larger trading partners in Asia, which should create opportunities for U.S. companies in those regions. That expected momentum, combined with what should be above average growth next year, could lead to a real opportunity for companies that know how to take advantage of it.

What trends are taking shape related to global trade?

COVID has definitely exposed some weaknesses in global supply chains. Because of that, two prominent trends are starting to emerge. One is near shoring and the other is ‘glocalization.’ While some high-value and critical good manufacturing is coming back onshore, the more significant trend we are seeing is near shoring of low-value manufacturing to low-cost markets closer to the U.S., such as Mexico. This helps preserve the manufacturer’s cost base while at the same time shrinking the supply chain and associated risks.

Glocalization, on the other hand, is a trend that sees companies building in countries where they sell to reduce risk and take a few links out of the supply chain. A global shift in production of this nature will likely be led by large companies, though with cascading impacts downstream. One of the most common reasons small and mid-sized companies expand globally is to follow their larger customers. This trend seems set to accelerate over the medium term.

How should U.S. businesses prepare for the coming year?

The total impact of COVID isn’t known yet and there’s going to be unexpected winners and losers. So, businesses either active in global markets or considering that activity should protect themselves through risk mitigation techniques such as letters of credit, foreign exchange hedging and credit insurance.

Seek advice from a bank that has a global network, both in terms of foreign banks and local advisers that can consult on local market practices and conditions, and diverse products that support companies that do cross-border business. Companies should also have an insurance broker skilled in cross-border risk and credit insurance. There are banks that have their own insurance arm, which can lead to a more comprehensive approach to risk management in cross-border dealings.

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Recognize employees’ needs as they adjust to remote work

Businesses have been faced with monumental disruptions this year that have driven foundational changes throughout their organizations. One of the most common changes has been the shift to remote work as government-mandated shutdowns closed many common work areas. While companies largely have a handle on the technical aspects of that change — providing equipment, making the necessary IT adjustments, tweaking processes — there’s more for companies to consider.

“Employee morale and engagement are significant issues for employers right now,” says Jim Altman, Middle Market Pennsylvania Regional Executive, Huntington Bank. “Companies that take steps to check in on their workforce and, as best they can, address any issues, will be more successful down the road.”

Smart Business spoke with Altman about maintaining employee engagement as the workforce operates remote.

What are employers reporting in terms of productivity since the move to remote work?

Productivity declines haven’t seemed to be the issue so far. Instead, there are cases where people are working too much. In those cases, it’s important for leaders to help employees manage their time so they don’t burn out. Where there is fatigue, employers should consider how they can support that employee because both their safety and their health are important to their success.

Support means something different to each employee. For example, as shutdowns affect schools and daycare centers, some employees may have to make arrangements to take care of children at home. They will benefit from an employer’s understanding and flexibility.

Gaining a sensitivity to those needs can be fostered by an increase in communication. However, this is not the time to micromanage. Moving to a remote work environment shouldn’t create different expectations or require more frequent checkups. But when or if there are declines in productivity, or an employee asks for more attention, then it makes sense to increase the frequency of communication.

How can employers help employees manage stress?

Working remote requires managers to be both caring when it comes to employees and reassuring. Leadership should find opportunities to thank employees for their work or share stories about how employees have made a difference for customers. That will go a long way, showing employees that their work matters and the organization recognizes their effort.

Companies can also relieve stress by finding ways for employees to have fun while they’re apart. Talk with human resources about possible, and organizationally acceptable, ways to help people connect and take a break from work. That could mean a contest or small group teleconferences during lunch. Activities like these could help employees who are missing the camaraderie they had with colleagues in the office.

What can employers do to help new hires who are starting the job remote get acclimated?

Onboarding is another aspect of operations that has had to undergo some changes because of the pandemic. For employers that are hiring while offices are closed, it’s important to make sure employees have everything they need to do their jobs effectively from the start. That means quickly shipping them the necessary equipment and making IT available to talk them through setup so they can confidently get up and running.

It’s a good idea to assign someone to work closely with new employees during the first few days or weeks to ensure they’re getting their footing in their new roles. It will also help employees get acclimated if colleagues reach out to the new hire, introduce themselves and help them navigate the organizational structure.

Companies that haven’t done so already should adjust their onboarding practices to reflect the new realities of the job and work conditions. Review current processes and introduce any new information that should be included in virtual sessions and what can be eliminated that no longer applies. It’s an important change to make to stay competitive as the market continues to rebalance.

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How the lending landscape is looking for 2021

As businesses look forward to 2021, many unknowns put their plans in a state of perpetual flux. The uncertainty impacts many areas, including the lending landscape.

“Regular and frequent financial evaluations are recommended throughout the end of the year and into 2021,” says Kurt Kappa, Chief Lending Officer at First Federal Lakewood.

In order to gain surer footing, some companies will plan to transition into new lines of business (and away from others). Executing expansion may require outside financing from lenders. Companies considering growth should keep lines of communication with lender partners open, especially as banks may increase credit scrutiny in uncertain times.

Banks want and need to understand a business’s plan for the future. If a business foresees transitioning into a new line of business, lenders want to be aware of and account for a business’s change in revenue as it pivots into new territory. Businesses planning on staying the current course need to share the rationale and forecasts with current lenders to be assured credit facilities can remain intact.

Smart Business spoke with Kappa about the lending year ahead and how companies in transition can work with their lender to keep vital financing options open.

What lending might companies need in the coming year?

More companies seem to be feeling confident about where they are and where they’re heading. Many have adjusted to the market and are seeing positive results. However, the banking industry, particularly the larger banks, are re-examining their overall market and industry exposure and may be pulling back and reassessing their credit risks. This may affect some banks’ appetites for extending credit or making loans, which could affect a company’s planned trajectory.

What funding are companies most interested in now?

Generally, a lot of companies that are looking to grow want financing to secure the funds necessary to reinvest in their companies. Some want to make capital purchases, like new equipment, now, so they can write it off during this tax year. Others may be exploring continued expansion through acquisitions, with a big push for end-of-year transactions.

Some business owners are weighing an exit. That’s typically the case where owners don’t have a succession plan, aren’t looking to grow through acquisitions and might not want the uphill battle through a challenging market. These owners are looking to exit the market now and cash in.

How might banks make lending decisions in 2021?

The pandemic has had a huge impact on all businesses around the world. Banks will want to see that businesses have a plan, preferably one that gives the bank confidence that the company can react to challenges as they arise.

Typically, banks want to see prior results and year-end finances, but there’s an understanding that those may have been disrupted by the pandemic. Financial projections are going to be key as financing decisions are made for 2021.

What conversations should businesses in transition have with their banker?

It’s really going to come down to the monthly forecasts, month-by-month cash flow projections, and profit and loss statements. It’s also about making sure the company has the right team in place to manage the transition. Sometimes, when a company pivots to something new, the expansion draws considerable attention away from the core business that made it successful. So the management team and ownership really need to work hand-in-hand to make the transition a success.

It’s going to continue to be a challenging year. Businesses should keep their bank and their advisers apprised of what’s happening in the company with forecasts and projections that show that the business is making the organizational changes needed to be successful. The chances of success increase when everyone is on the same page.

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Automated payables platforms offer cost savings

There are popular tools available to companies to automate their payment workflows, a presumably welcome relief to many accounts payables departments. Still, companies today tend to stick with what they know, making more than half of their payments by check.

“These are physical things that need to be printed, signed and mailed,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “That’s not only time consuming, but given the technology available, difficult to monitor and needlessly costly.”

Companies looking for cost and process efficiencies are moving to electronic services — integrated payables platforms, virtual credit cards — to submit and control payments.

“Integrated payables services make vendor payment delivery, settlement and reconcilement easy,” he says.

Smart Business spoke with Altman about the effect of payment automation on companies’ accounts payables departments.

How would you characterize companies’ rate of adoption of these payment automation tools?

The rate of adoption of payment automation tools has been slow to this point largely because these services aren’t core aspects of most companies’ businesses. It’s more a utilitarian necessity. Businesses prefer to focus on activities that generate revenue, so products and services such as payment automation tend to get less attention.

Payment automation tools eliminate much of the heavy lifting in the accounts payables process and create a one-stop shop that processes payments while keeping all data, regardless of payment method, in one place.

Why does there seem to be a hesitance to change?

An integrated payables platform is essentially a website with a secure login access designed specifically for vendor payments. It features a configurable workflow process to maintain separation of duties for more fraud mitigation. Reporting is available through the interface so as transactions are made, their status is updated.

Adoption rates are high with newer companies that aren’t entrenched in a way of doing things. With older companies, the challenge is really just resistance to change — they’re hesitant to take on something that seems like a project. Finance staffs are squeezed for time, so getting them to welcome a new way of doing their jobs just seems like a task they don’t have time for. Overcoming that inertia is often tough.

However, what companies don’t take into account is that the simplicity of the new system means integration can be done in a matter of days, not weeks. The interface is very straightforward and uploading payment data is simple.

How might the integration of payment automation tools affect the costs of payment workflow and security?

A paper-based check payment system has costs for senders, such as maintaining a printer with magnetic ink and its paper stock, the cost of the mailing supplies, postage, and also time.

The manual processes and workflow are, compared to digital methods, difficult to track and control. There’s often no audit trail, especially at the transaction level. With automated workflow tools, an audit trail is automatically kept for any action taken on each payment. It’s a meaningful improvement in terms of ease of use and cost of service. It frees up time for an AP staff to take on more value-added activities.

Adding to the movement toward electronic-based systems is the need to mitigate fraud. Any check that is written should be protected with Positive Pay controls, and integrated payables services automatically provide this protection. But migrating payments from check to virtual cards is really changing the security dynamic because virtual cards have little fraud exposure. These cards have a designated shelf life and dollar amount. They have security features that prevent them from being used just anywhere. As an added benefit, moving payments to virtual cards also bring rebates to a company that could outstrip the costs of the former manual process, effectively adding revenue to the AP department’s budget.

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Pandemic-related threats exploit companies’ weaknesses

As if times weren’t challenging enough for businesses, companies are now dealing with pandemic-related cyber security threats. These scams are trying to take advantage of the crisis with targeted campaigns that play on people’s fear and sense of urgency, including phishing, business email compromise, spoofs of CDC emails, donation scams, and scams around personal protection equipment.

Smart Business spoke with Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, about these threats and how companies can protect themselves.

What types of threats are on the rise now?

There has been an increase in business email compromise. For example, a company pays a landscaping company to take care of the property. If a scammer can get enough information about the landscaping company, they might send an email posing as the landscape company to the invoice processing folks saying that the bank account information has changed and provide them a new bank routing and account number that goes to the scammer’s account.

Ransomware has also become a greater issue for companies, but with a new twist. Scammers aren’t just holding the information hostage, they’re now using that information to extort the company by threatening to release information that could tarnish its reputation. It’s a whole second dynamic on ransomware that really revolves around a new disclosure issue. It’s a tremendous change in scammer tactics over the last six to nine months and it’s likely going to get worse.

Another new issue revolves around integrity of data. The rise of misinformation campaigns has made it difficult to discern fact from fiction. That makes it easier to put some inflammatory information out and have it get some legs. It’s something that’s expected to be much more of a concern for businesses.

What weaknesses are scammers exploiting?

Often what’s being exploited in these scams is employees. They often react too quickly and without scrutinizing the message. Prevention, then, is in large part about engaging employees early, making them aware of the threats and asking them to be diligent. Ask them to pause before responding, especially when the request is about the movement of funds.

It’s important that employees are trained to look at where messages are coming from. That means carefully looking at all the information because the difference between a legitimate message and a scam is often one letter. While a lot of the fake domain names were registered around the COVID pandemic, a growing number were registered with just a simple change — taking one ‘t’ out of ‘Pittsburgh,’ for example, to spoof legitimate company websites.

Employees should also use a two factor authentication process — something you have and something you know. Passwords are often the thing you know. Tokens, either hardware based or software based, cover the something you have. This is especially critical when it comes to requests that have to do with money. Confirm any client-requested change directly with the client by calling their contact using a number that’s on file and not by clicking on a link or calling a number that’s in the email.

How can companies protect themselves?

Protection should happen on a number of fronts. In addition to training, companies should make sure they have updated and current operating systems and applications, solid electronic payment processes and a vulnerability and patch management process that has clear policies and procedures around cybersecurity. Large companies should independently assess their security through an independent assessment. Those that are sharing data with third parties, such as in instances where certain responsibilities are being outsourced, companies should assess the security of those partners as well.

It’s also important that companies have checks and balances in all of their processes. Make sure to have segregation of duties, assign only account privileges required for employees to fully handle work tasks. Also consider cybersecurity insurance. It’s a good idea to engage professionals to really look through a policy to find out what it covers if the company is affected by ransomware.

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How the pandemic has affected risk profiles

What companies seem to be learning from the disruption caused by the pandemic is there’s a really strong need to re-evaluate their insurance coverage.

“But that’s not the only piece of risk management,” says Jim Altman, Middle Market Pennsylvania Regional Executive, Huntington Bank. “It’s really about building a best-in-class risk profile that enables companies to mitigate risk in an efficient and effective way.”

Smart Business spoke with Altman about how companies should look at risk, and who they should talk to about it, to lessen their exposures during uncertain times.

Where did coverage gaps become most obvious when the pandemic hit the U.S. and how did that affect businesses?

There seemed to be a misunderstanding about what business interruption insurance would cover. This is a standard part of coverage that applies primarily to property and requires property damage, in most cases, to be triggered. With a pandemic, there was no real property damage, according to many of the insurance companies, though many claims are still being reviewed.

But there are other instances of risk being heightened as well. One of the most common is cyber exposure. Whenever there is some sort of crisis, there are likely to be bad actors. In the digital world, that could mean increases in phishing attempts that aim to get employees or customers to provide information that allows cybercriminals to hack into a company’s system or trigger a transfer of funds. That’s led to more conversations with businesses about that aspect of risk.

Directors and Officers and Employment Practices Insurance are there to mitigate liability at the executive level. This is applicable now as management is making decisions about remote work — who’s required to come into the office and who can work from home — and how those decisions can impact an individual.

How can businesses shore up their coverage and close gaps right now?

Businesses should have a conversation with their insurance broker about what their business is experiencing right now and the changes they’ve made. For example, they may have fewer employees or employees in different roles based on the business’s needs. That can create a different exposure and businesses should have a risk adviser or insurance broker who can ensure that they have the proper coverage. And then they can talk about how they expect their business to look going forward.

It’s never too early to have conversations with somebody who understands the risk marketplace. They can help companies identify steps that can be taken within those businesses to mitigate or lessen their risk.

What should businesses consider when it comes to employee benefits?

The impact that the pandemic has had on employee benefits programs, and especially on human resources policies and practices, is perhaps most profound as it directly hits at the heart of any business — the health and welfare and morale of their employees. New legislation, enacted following the forced shutdown of ‘non-essential’ businesses in many states, not only provided critically needed financial relief but introduced new regulatory guidelines on how employers must now manage their employee benefits programs and personnel issues affecting employees who have been laid off, furloughed, or who are working from home.

Beyond ‘benefits,’ employers must now consider developing a comprehensive human capital strategy that includes valuable health programs and protections that addresses the financial welfare of the workforce while delivering cost efficiency for the organization.

It’s important that companies are mindful of the pandemic and how the economic effect of it is impacting their business and their approach to management and employee benefits. Seek out advice from people who understand the unique risk exposures of a business so those can be mitigated. That could get a company through 2020 and set it up for success in 2021. That will require being proactive and having meaningful dialogue with somebody who’s willing to take the time to build a strategy that works for their business specifically.

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Opportunities to preserve generational wealth during the disruption

Although the pandemic has brought with it a host of challenges, for borrowers, there are areas of opportunity. The low interest rate environment, for example, has created low-cost borrowing options for refinancing. There is also a favorable tax environment and conditions that make now a good time for gifting estates, especially those that are expected to grow.

“Now is a time for high-net-worth individuals to utilize the current difficult market to take advantage of low interest rates and market volatility,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank.

Smart Business spoke with Altman about some opportunities high-net-worth individuals should capitalize on while the conditions are favorable.

How can individuals take advantage of current interest rates?

With interest rates at historic lows and values depressed, now is a good time to gift or sell assets expected to increase in value to the next generation. By selling assets, such as a business interest, to a generational trust in exchange for a promissory note, interest rates can be frozen at historically low rates, currently less than 1 percent.

The IRS offered guidance as to these rates by issuing Applicable Federal Rates monthly. If the trust is paying interest on an existing note that is higher than 1 percent, it’s to the advantage of those in the next generation to renegotiate those notes.

Now is also a good time to consider refinancing a mortgage or other debt. Those whose mortgage interest is above 4 percent could refinance and drop down into the 3-3.5 percent range. People are doing that with certain types of trust structures when they’ve sold assets to that trust.

Why is it important to take advantage of estate tax exemptions now?

Currently, individuals can pass $11,580,000 estate and gift tax-free during their lifetime or at death. And those who are married can double that amount. This, however, is temporary, because the law is going to sunset at the end of December 2025. So right now, there’s a limited opportunity to transfer that appreciation.

With the volatility of the market, it’s unclear what the financial situation of many wealthy individuals could be. If a gift is made now, because businesses are not as profitable as they were the previous two years, it could potentially result in a lower valuation. That could work to someone’s advantage because a lower value means using less of the exemption, which means more of the exemption is left over to gift other assets. That could be a huge boon to a family and its heirs.

Why is now a good time to pay income taxes?

The income tax landscape is also expected to change. The current tax law is set to expire in 2026. And when it does, the highest individual tax rates will increase. So, now may be a good time to pay income taxes because it can be done at what would be lower rates than we may have in the future.

Another strategy to consider is converting an existing IRA to a Roth IRA, and pay taxes at 37 percent at the top versus 39.6. This offers a chance to manage the overall tax impact to a family when making a generational wealth transfer. It should be very enticing because of the expected rate changes.

For business owners, there are a lot of ways in which they can proactively tax plan now through their business. Owners could try to time some of their revenue in between this year or next year, look at certain deductions and possibly take advantage of some of the provisions in the recent CARES Act to lower their tax burden.

Be mindful of the opportunities that are available in this very uncertain time. Even those who don’t feel they’re in a position to make these gifts should revisit their goals and objectives in their estate and business succession plans to see what opportunities exist. There may be significant savings available that would preserve wealth for generations to come.

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Tips for staying on top of fast-changing market forces

Companies are making significant changes to their business from one day to the next because of rapidly changing conditions in the marketplace. They’re preparing both for the possibility that normalcy might return and that there will be further disruptions. Either way, change is inevitable. That means staying focused and being nimble enough to adjust course quickly.

Smart Business spoke with Kurt Kappa, Chief Lending Officer at First Federal Lakewood, about how leaders can stay on top of fast-changing market forces and keep their organizations poised to respond.

What are some of the keys to keeping pace with changes in the market?

It’s important for leaders continue to stay in front of their team. They need to make sure team members are actively engaged, using video calls, weekly huddles to catch up, sending congrats emails when a project wraps. The more communication the better.

The way business is conducted may not be the same. More interactions are going to happen online, which for some businesses means infrastructure needs to be addressed and improved. That could also entail shifting resources and dollars. There will likely be changes to the way companies share their message to customers and prospects. And in some cases, companies’ distribution networks are going to be different. All of this is going to require shifts in internal responsibilities, strategies, external relationships, budgeting and more.

CEOs and top-tier management need to review and adjust their strategy. They need to look at where they started off the year, what their plans were, and what transpired over the last three to four months. Then, they can re-evaluate and readjust their budget and focus for the year. That means determining where organizational focus should be and how to redeploy resources to that end.

Where should company leaders turn for perspective?

Industry trade groups are a good resource for outside advice. Leaders from many companies are able to discuss the challenges everyone is seeing across the country and how they’re addressing them.

CPAs are also great partners because they’re intimately involved with the financial aspect of the current situation. They’re seeing what’s going on both at a company and industry level. Similar to a trade group, accountants are both aware of the macro issues and how individual companies are handling them.

Because companies need to lean on their advisers more than ever, now is the time to ensure the right team is in place. Accountants and bankers are both seeing different aspects of the challenges in the market, so it’s a good idea to bring them in to get their perspective on how best to address the challenges.

How does a company balance making the right short-term moves without hurting itself in the long term?

There could be a tendency toward knee-jerk reactions as companies focus on the bottom line. While it’s necessary to take a shorter-term approach to get through the immediate challenges, companies should not lose sight of their long-term plans. It’s important to stay nimble enough to navigate the current challenges while keeping an eye toward the overall strategy.

Earlier this year, some businesses may have been considering making an acquisition, or possibly selling the company or some of its assets. But, conditions have changed drastically. It’s important to take into consideration the current environment and how acting on these previously planned moves may help or hurt the long-term vision.

Change is inevitable. Today, it’s happening at a faster pace than ever. That makes communication critical. Leaders should look to their advisers for advice and keep the long term in mind as short-term changes are made.

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How companies’ cash position affects their options in a downturn

Cash has always been king but, given the pandemic’s impact on the economy, that is true now more than ever. However …

“Hording cash for the future isn’t a complete solution,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “But at the moment, a strong cash position enables companies to both overcome revenue challenges and be opportunistic — to have options and not need to be reactionary or inwardly focused.”

Altman says there are actions companies can engage in now to improve their current position. But at the same time, they should be thinking about seizing future opportunities and better insulating their business against future difficulties.

“It’s a time for action, but also reflection — a chance to figure out how the company got into the position it’s in and what it could have done to be in a better position,” he says. “Now is a time to take lessons from the crisis and use them to make a stronger company on the other side of the pandemic.”

Smart Business spoke with Altman about the role of cash today and how it affects the way companies approach the market.

How does cash set companies up to be offensive or defensive?

As demand for many products and services has declined, many companies are burning cash reserves at alarmingly high rates. Cutting costs and stimulus programs offered some relief for many but haven’t guaranteed complete success for the long term.

Those companies that had a less-than-ideal cash position when they were confronted by the pandemic are now playing defense, meaning they’re compelled to make decisions wholly to address short-term challenges rather than take advantage of long-term opportunities. This lack of options can make a company vulnerable.

Companies with ample cash reserves are in a position to play offense. They can take advantage of other companies’ challenges — for example, acquiring a struggling competitor for a very attractive price — and avoid reactive decision-making in the short term that could limit their opportunities in the long term.

How can companies maximize their cash position?

Companies should focus on their cash, collections and managing disbursements while also reviewing and managing the line item expense components. The latter should include a workforce review, prioritizing critical positions as the company operates in a reduced revenue state. Also look at every expense item to see where cutbacks can occur in both the short and long term.

Review and manage capital expenditures and evaluate how to lower leverage so that debt service isn’t an additional burden in a cash-challenged environment. A line of credit should be available as a backstop as an additional source of potential liquidity and is very important to have in place.

Also consider selling assets that are not critical for the future, and have a willingness to be creative in finding alternatives to generate revenue, even if in the short term, to maximize capacity and all resources in the company.

What should companies focus on for the remainder of 2020?

Companies should generally evaluate their cash position weekly or at a minimum monthly, with a focus on three-month intervals and re-evaluating as new information becomes available. Cash collections and disbursements are the priority, as are evaluations of what can be done differently to generate more cash and reduce expenses.

Because there’s a lot of uncertainty, it’s important to plan for the balance of 2020. As economic challenges occur, the best companies continue to look forward while dealing with the present. Challenge the status quo, and lean on experts to help guide your decisions and think through new ideas. To that end, bankers can provide insight-based new ideas on what they’re learning from talking with a range of companies.

While it’s tough, success, even during a crisis, is as much about dealing with the present as it is looking out to the future. Companies need to be opportunistic when the economy is challenged — be in an offensive state — and that requires both discipline and creativity. The alternative is being defensive or inwardly focused, which presents its own set of challenges.

Insights Banking & Finance is brought to you by Huntington Bank

Regrouping as businesses begin to reopen

Since the start of the pandemic, banks have been there for their clients. They have helped companies navigate the financial and strategic challenges that came with sudden closures, constrained operations and supply chain disruptions. And banks are still there, helping businesses regain their footing. But to do so effectively requires full disclosure between businesses and their bank by working together as partners.

“This is the perfect time for businesses to be proactive and put it all on the table,” says Wesley Gillespie, regional president at ERIEBANK. “As a financial institution, we are here to help businesses.”

Smart Business spoke with Gillespie about what businesses should do in the short term to have a better chance of being around for the long term.

Where should businesses focus their attention?

Their attention should focus on cash, customers and credit.

Cash is really about their weekly and monthly rate of cash burn and how long their cash will last them if they faced a significant reduction in revenue or had no revenue at all. That requires a look at expenses to see where resources may need to be reallocated or what operating expenses need to be cut. They should also look very closely at collecting on their receivables. They might be able to collect faster by offering discounts to get payments sooner. At a minimum, they should keep a close eye on their contracts and close the gaps as quickly as possible.

Businesses should also be close to their top customers right now — know what they’re thinking, doing and feeling so that they can put themselves in a position to understand and address some of their problems. Keep up a dialogue to be aware of where customers are struggling and offer solutions. Businesses have a stronger chance to recover or grow if their customers are doing well.

Businesses should also examine their credit relationships with their bank and vendors. Companies may need additional credit for working capital or may need to work with vendors or customers on payment terms and arrangements.

What is important to discuss with a banker right now?

One of the primary conversations that businesses should be having with their banker right now is related to their liquidity position and their credit facilities, which may need to be reviewed. In some cases, a business may need a total restructuring of its credit or its debt. Where there are loans, there may need to be a conversation about deferring payments, either going to an interest-only payment for a period or total deferment of principal and interest. Liquidity right now is paramount, particularly for nonessential businesses that were closed during the last 10 weeks or had constraints on their operations. These are all important conversations to have.

What should companies do as recovery begins?

Companies that remained open should review their supply chains and look for alternative ways to procure critical inventory in the event of a future disruption. Now may be a good time to rate the efficiency of the operation through the initial challenges and make adjustments based on resources going forward. This could be an opportunity to regroup as restrictions ease.

Now is a time to review and revisit HR policies and procedures. Some companies, for the first time, may have made work-from-home accommodations for employees. Companies should explore those policies and procedures and adjust them in the event that they may be needed again.

The disruption might also present merger and acquisition opportunities. M&A offers a chance to expand the company, add a product line, or move into a new market. This creates the possibility for businesses to come out of the pandemic even stronger than they were before it began.

And finally, it is a good time to re-evaluate your banking relationship. Community banks worked hard for their clients at the start of the pandemic, counseling them through their challenges, adjusting their credit and loan obligations and helping them connect with critical financing. Working with a community bank often means less red tape and a more agile response to customer needs so companies can get back to and stay in business, even in the most challenging of times.

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