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Legal and financial preparation for small businesses in the face of COVID19

As Coronavirus (COVID-19) works its way in every aspect of our lives and businesses, who wouldn't want a lawyer and a CFO on speed dial to advise them right now?

In the first panel of the Elevate Series, I jumped on a Facebook Live with Stephanie Skryzowski, a fractional CFO, and Autumn Witt Boyd, a lawyer for entrepreneurs, to find out what we, as small business owners, need to be doing right now to survive the impact of the Corona pandemic.

You can watch a recording of the panel discussion here or read the summary which has been cleaned up for ease of reading below.

CLICK HERE TO GET YOUR ANY DAY CRISIS PLAN TEMPLATE



Diane Mayor (DM):  I am very excited to start off this series with two of my smartest, friends who I'm sure have been picked to be guests on numerous conversations on these topics.

Stephanie Skyzowski (SS) is a CFO, who helps purpose-driven leaders understand and use their numbers to make better decisions

Autumn Witt Boyd (AWB) is a lawyer who helps entrepreneurs protect their most valuable asset, their intellectual property.

I wanted to kick this series off with you because I feel like this is the space where people need to do the most prep right now. This is the stuff that they need to be digging into as soon as possible, rather than in four week’s time.

THE CURRENT CLIMATE

DM: What are you seeing with your clients and with your own businesses in these uncertain times?

SS: I have vacillated between feeling very hopeful and the pit of despair. I think, like everybody, I have highs and lows, but as I have stepped back a little bit, and really thought intentionally about where my business is going,  what just keeps sticking out to me is having the plan and that's what all of our clients are working on as well.

We are making sure that we have a financial plan and we can see into the future of our business. And that is giving people a lot of peace of mind because we can roughly predict what our businesses will look like financially in the next 3, 6, 12 months.

I think it also depends on what industry your business is in or what industry your clients are in. Because I'm seeing some of our clients, that were very heavily reliant upon the travel industry, are pretty well decimated right now and have had to make some very, very tough decisions very quickly.

They already had their financial plan mapped out so they knew what levers they could pull quickly.

And then others whose offerings are really timely right now, helping people develop new skills and helping nonprofits grow their fundraising, are actually ramping up on Facebook ads and doing really well.

I'm seeing businesses all over the place, but the one consistent thing I'm seeing is that the people with a plan are feeling like at ease.

AWB: I had my first phone calls last week from clients who were saying, “I'm looking at bankruptcy. I don't know how we're going to ride this out.”

I remind them that we have options and to take this one step at a time.

With my own business, I sat down and looked at all my expenses. What's coming in, what's going out, where can I adjust?

What I'm seeing is that cash is really important right now. I'm getting people panicking about having customers cancel or clients postpone.

We’ve been looking at the contracts, especially with people who did live events. Those are pretty much all either on hold or canceled for the next couple of months. So we've been looking at venue contracts, catering, all kinds of other vendor contracts to see if they had a force majeure or act of God term.

And a lot of them don't. Even if your contract doesn't, you still have options. The contract is the starting point, but you're not necessarily handcuffed to it.

So I've been telling people is we're all going to have to be flexible. We're all going to have to be open to compromise. And if you think that you're going to just hold somebody to a contract and they're going to take the hit and you're not going to take any, like, that's not really helping anyone.

DM: And I'm guessing that it's not that unusual that most people don't have a force majeure term?

AWB: Yeah it's interesting. I write a lot of contracts and we sell contract templates and a lot of people who we work with, they want short contracts. And so that's something that often gets cut because we haven't had a force majeure event if you're not in New Orleans thinking about flooding or on the coast where you might expect hurricanes.

So that's something that a lot of people cut out of the contract.

Click here to get Autumn’s contract templates with force majeure clauses

DM: When you're looking, as like a non-legal person, at a contract, and you read the force majeure term I always think, “Oh, that's really going to scare someone.”

So I think,” What is the likelihood of that coming up and can I cut it?”

AWB: You're always balancing how big a risk it is. You're probably going to be seeing a lot more of them in the next couple of months.

DM: I think though, now it's probably easier to explain to a client signing a contract, that we have this because of Coronavirus.

In the same way, it's much easier for me to talk to people about having contingency plans now because of Coronavirus.

DO WE SPEND OR DO WE SAVE?

DM: I'm definitely seeing is two very different sides of the money conversation happening online.

Some people are advising to save all your money, cut everything now, slash the costs that you can, and we don't know how long this is going to last.

And then there are other people who tell you that you're obliged to sell, and you should also be investing because you are responsible for the economy.

What are you telling clients?

SS: First of all, when we're thinking about cutting, now is a great time to go through your expenses with a fine-tooth comb and say, “What am I really using? What is really making an impact on my business?”

Because I think we all have those software subscriptions that we signed up to that we don't even know what they are anymore, but they're charging us 75 bucks a month. Now is the time to comb through those. Let's clean up our expenses and cut anything that is not useful to us, that is not helping drive revenue.

I am not necessarily telling clients to stop spending money but to spend it very intentionally and thoughtfully. So if we had a plan to invest in, for example, a new website or something that's not going to be a huge revenue driver, if it's not going to impact your revenue, maybe now is the time to pause on that investment.

But if you had plans to invest in something that is going to be a big revenue driver for the business, I think now is a time to, to really look closely at the ROI.

Is it going to drive top-line revenue? If yes, maybe it is something to invest in right now, but if it's not really a necessity, maybe just pause and bump it a little further down the year in your projections.

Of course, it depends a little bit on what's your cash situation right now and many months of cash do you have on hand. If you've got, you know, a three to six-month reserve sitting in the bank and you do have a little bit of wiggle room then maybe you can invest in some revenue-driving activities, but if you're kind of coasting it on fumes as it is we don't want to dump thousands of dollars into something right now.

WHERE ELSE SHOULD WE BE LOOKING?

DM: I've been saying to people is not to just think about your business expenses. Have a look at what you're spending at home because often for small businesses, you are the most expensive thing in your business.

Whether you're taking it as a salary, where you're taking it as profit, you are probably expensive. And if you could be a little less expensive that helps the business.

Would you say that people should take that same approach on their personal finances?

SS: I think so. I saw a post from somebody the other day that was canceling subscription boxes. Like that beauty product subscription box. Is that necessary right now? Can you afford it?

If you cut that, what else are you able to do? And for some people, this may not be impacting their income in a huge way, but maybe that means you're going to have the space to contribute to organizations that are helping in the COVID relief efforts and things like that.

It's not just paying your bills, but being able to do what you want to do with your money in a time like this.

HOW DO WE CHANGE OUR CONTRACTS

DM: One thing I've looked at not just my contracts with other people, but my actual client level contracts and figuring out how quickly could I get out of a membership or program if I needed to. So not actually making the cut now checking what the contracts say.

AWB: I think that's really important, especially because a lot of those contracts, especially if it's a one on one engagement, may have a 30-day notice requirement or a longer.

So if you think you may need to cut that, it's a good time to take inventory and see how much notice is needed and make sure that you have that in your plan.

DM: And then would you do the opposite as the business owner? Is there anything else I need to be thinking about now?

AWB: A lot of my clients are moms with young and it may impact your ability to provide the services that you've promised. There will be people who just don't have the time or the quiet or the ability to deliver what they promised.

So, if you are a service provider, I want you to be thinking about that as well and maintaining open lines of communication with your clients. Saying, this is my new situation. I think I can keep delivering or we're going to need to make these adjustments.


The earlier you can open those lines of communication the better and be as transparent as you can. We're all in this together. We're all figuring this out. I think people are willing to be flexible as much as they can.


The earlier you can open those lines of communication the better and be as transparent as you can. We're all in this together. We're all figuring this out. I think people are willing to be flexible as much as they can.

But if you just start dropping balls and you're not telling people or not showing up, or not doing your job, that's going to really damage your relationship.

But if you're altering your contract terms, let's put it in writing. You’re going to need to amend your contract. It can be a one-page addendum. It doesn't have to be anything complicated.

I'm seeing a lot of people just extending payment terms or letting people skip payments. There's a lot of different ways we can keep our clients, keep working and be flexible. But I want those things in writing because if we have questions later, there's just a lot of opportunity for, “Oh, I thought it was going to be this. And you thought it was going to be that and we never actually talked about it.”

YOUR TERMS AND CONDITIONS ARE YOUR CONTRACT

DM: So, say you had a membership and you wanted to like pause it.

Is there, is there a way to like contractually keep people in your membership without access for like three months or, you know, audible does a fantastic job of this. They, you can pause audible for three months, keep your credits and then it comes back for a month and you get billed and then you can pause again. But I can't imagine how we would do that as a small business.

AWB: It’s going to depend on your tech set up, but you know a lot of the course software options have terms and conditions that you can ask people to agree to at checkout so you may be able to add that there.

DM: And how much do the terms of service like govern over your contract?

AWB: It's everything. That is your contract.

DM: If you're selling something online that's your contract?

AWB: That's your contract. A lot of people don't read it or they don't realize it's important. So I always try and make it very visible at checkout, and so people can read it before they pay. You don't want to just send it to them afterward, but I have a lot of people who are very loosey-goosey about that, and, if anything good comes of this, I am hoping it will cause people to think about some of these things.

HOW DO WE FACTOR IN REFUNDS AND CANCELS TO THE PLAN

DM: How would you explain provisions, for example, you've reread your contract now and you realize that actually some people might be able to get out of it tomorrow. How do I factor that into kind of my cashflow?

SS: So most of our clients who have some sort of program like that with recurring revenue and people's credit cards are being charged on a monthly basis have already built that into their cash flow forecast with a default or refund line that accounts for that.

In this period, we might up that percentage and usually, we use a percentage based on history such as the average refund rate that we've seen or average discount rate so maybe during this time, we might bump that up. If it's normally 5%, we need to factor in for 20% or 25%.

It goes back to having a plan. A plan is basically just a general P and L format of the profit and loss statement where you've got your revenue on the top of your expenses on the bottom of your net income. And then by month.

So we can see not only what has happened, but what is going to happen and then a line for refund or discount so that we can really see into the future. 

PAY ATTENTION TO INVOICING

DM: How about the web designer or graphic designer who has a proposal based business who has maybe been paid upfront or being paid monthly.

AWB: I find it to be the opposite. DM, with most of my clients, they may take a deposit or progress payments, but usually, they're not getting a big chunk upfront before they've done the work. They've done a bunch of work and then the client can't pay at the end.

Again I'm encouraging, open and honest and early communication. If you've got a big project, and you're having to pay contractors, for example, if you're doing web design, you may have a developer or a designer that you're paying, you need to make sure that you're not out of pocket.

If the client is thinking about canceling, you want to know that early. It's no fun to call the client and say, “Hey, how are you doing?  Are you going to cancel this project?” But it's much better to know that early before you're out a bunch of money because you, of course, are going to want to pay your contractors even if you're not getting paid. And that can put you upside down really quickly.

DM: Also in that kind of situation, early communication now, while things are slightly calmer, you're more likely to get the “no, I'm so happy with your work”  response which is an email that you would want to then save so that things get tighter and tighter and tighter and that few thousand starts looking very tempting to people or they just don’t have the money, that kind of communication can be used as evidence of services delivered.

Because sometimes that can be really hard for us to prove a non-physical delivery.

AWB: The other thing I'm recommending that people think about if you're not already. You are basically a creditor if you are doing client work and you have not been paid.

Maybe taking a bigger deposit or you're requiring monthly project payments instead of just like half of the beginning and half at the end. At my law firm, actually, before any of this happened, we decided in December to start requiring clients to put a credit card on file. Not because people weren't paying, but sometimes they were slow and I don't want to spend my time being a bill collector.

So we started doing that and we have a process in place and it's very easy and the clients are fine with it. Start thinking about how you can make sure you can get paid because things are going to get really tight here in the next couple of months.

Let's make sure you actually make money when you're supposed to – set up recurring, automatic payment. The easier you can make it for people to pay you the better.

DM: Stephanie, from your side on that recurring revenue, I assume that's also easier for people to forecast their cash flow because they know when everything's coming in, they've got a credit card. It's coming through. Unless there's been some kind of dispute.

SS: Yeah, absolutely. And we see clients all the time having to chase down payments as well. Make sure to stay on top of your invoicing because for some people cash hasn’t been a big pain point for your business. And so you invoice people and then you forget to follow up and they haven't paid.

Make sure that you're really staying on top of your accounts receivable – look at that on a weekly basis because it's something that could take you from having a couple of months reserve of cash in the bank to nothing very quickly if you are not staying on top of it.

START NEGOTIATING NOW

DM: And I guess given, like in the US there's a lot of like mortgage holiday and student loan interest freeze talk so at the moment people actually have cash. How about reaching out to clients who you are in a bigger project with and saying, “Hey, did you want to pay in full for X amount of discount?” so that that cash comes into your business and you're not left, in three month’s time, when cash is tighter fighting for that monthly payment?

SS: I love that. I think that's a great idea. Especially offering a discount incentive to pay upfront. That way you've got the cash in your bank and you won't have to worry about spending a minute chasing, you know, anything in the future. I think that's a great idea.

AWB: Remembering like SS said that that's not all your money until the project is finished.

DM: No, but at least you've got the cash in your bank account and if you have to give some of the back you are in control. Would we need to do anything like legal wise, would that just be an update that you've paid in full with a discount?

AWB: Just have a paper trail. I don't think you need to formally update the contract or anything. But have a receipt.

IF YOU ONLY DO ONE THING

DM: I think everybody wishes they had a CFO and a lawyer on speed dial at this moment in time if you could tell them to do one thing, their finances or their contracts, what would it be?

SS: One thing that I keep saying over and over again is it knowledge is power.

And so when we have a plan, when you have really taken the time to map out your projections, your revenue, your expenses, get everything all in one place on paper, you're coming from a much more clear place to make decisions at a much more thoughtful, slow, intentional pace rather than being reactive and making knee jerk decisions.


Getting all your numbers in one place that you can really come from a place of clarity is going to make all the difference in the world between your business sustaining and your business totally going under.


I think that's what we all need right now. There's so much out there on the media where it's like things are changing left and right and I feel like just taking a step back and getting all your numbers in one place that you can really come from a place of clarity is going to make all the difference in the world between your business sustaining and your business totally going under. I just don't see enough entrepreneurs really having those financial projections and I think is just critical right now.

I think that's what we all need right now. There's so much out there on the media where it's like things are changing left and right and I feel like just taking a step back and getting all your numbers in one place that you can really come from a place of clarity is going to make all the difference in the world between your business sustaining and your business totally going under. I just don't see enough entrepreneurs really having those financial projections and I think is just critical right now.

DM: I love that. I think a lot of the time entrepreneurs are kind of scared to look at their bank accounts.

And I'm always saying your balance doesn't change if you look at it or you don't look at the number. Might as well know what that number is.

And legally Autumn?

AWB: I am just encouraging everyone to take a breath and stay flexible. We're all going to have to compromise.

We are not going to get through this thing by drawing a line in the sand and sticking to the terms of our contracts and running to the court. It's just not going to work.

In law, we rely on precedent. So that means we look back at what people have done in the past and similar situations. This is unprecedented.

So if you run to court, who knows what's going to happen. We're going to be litigating this for years. The more that you can reach a friendly agreement with your clients, with your customers, with your vendors, communicating early and often you're going to be, in a way, way better position.

You're going to maintain your relationships. We're all trying to just ride this out. Everybody's going to take a hit, but if you can maintain those relationships, maintain your calm, maintain your business. Then you're going to be very well-positioned when the economy comes back and people have money to spend. But a lot of businesses are going to go out of business if they're not taking some of these proactive steps.

DM: That’s the focus. This will end and then how are you going to be able to show up.

AWB: Are you going to be proud of how you behaved and is your reputation going to be intact?

DM: Yes, I've been saying #beagoodhuman – how would you want to be treated and then like act accordingly.

This was great. Thank you for being such an amazing first panel. I think people are probably furiously scribbling notes. I will share both of these ladies’ amazing websites that you can find them and find more information on what they do.

Watch the other panel discussions and grab all the COVID19 resources HERE.

Disclaimer:

The information contained above is provided for information purposes only. The contents of this article are not intended to amount to advice and you should not rely on any of the contents of this article. Professional advice should be obtained before taking or refraining from taking any action as a result of the contents of this article. Diane Mayor disclaims all liability and responsibility arising from any reliance placed on any of the contents of this article.

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