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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