Navigating COVID-19: Practical financial crisis guidance for social ventures

  1. Working Capital: Squeezing cash from your business
  2. Scenario Planning: Revisiting P&L and cash flow
  3. Cutting costs: Reducing non-personnel, personnel expenses
  4. Layoffs: How to do them well
  5. New realities of raising capital
  6. Your role as leader

1. Squeezing cash: Working capital stack

  • Cash on hand: How much and where?
  • Short term cash-like investments: How much, where and how liquid?
  • Lines of credit: Do you have them? Is it time to draw them down? Get the paperwork ready so that when you decide to draw them down there will be minimal friction in getting the funds.
  • Accounts Receivable: Talk with people that owe you money. What can you do to accelerate their payments to you? Offer payment discounts if you must! Chances are other companies are calling them as well, so you want to get in there quickly when they’ve got the money to pay you.
  • Accounts Payable: Call your vendors. Assertively but sensitively discuss pain-sharing arrangements that allow you to delay payments. Once again, in this area, the squeaky wheel gets the grease. Pick up the phone — don’t do it by text, don’t do it by email.
  • Inventory: Look at ways to turn existing inventory into cash. What can be sold? How can you be creative. Look at outstanding purchase orders and make decisions on what to buy and what to cancel.

2. Scenario planning

  • Assumptions don’t have to be guesses. Work to gather as much information as you can, assess it, and decide what it means for your business. As you learn more, you can always update the assumptions that drive the financial model.
  • If you look at this simply as a “budget revision” process, you will fail. It goes way, way deeper.
  • Question everything, especially every expense

Create two versions as you do your scenario planning:

  • Your models should be monthly. With this framework, you should be able to get a read on where you expect your cash balance to be at the end of each month.
  • The most important variable is revenue. You can’t just wing it. You need to create your expected sales pipeline customer by customer, or guarantor by guarantor. For non-profits, the same holds for grants and contributions.
  • Reimagine your revenue. What “old” ways of generating revenue will continue? What “new” ways of generating revenue can you develop?
  • This is not a one-and-done process. You’ll should be updating these models at least twice a month until your confidence in trends lets you do it less frequently.

3. Reducing costs

  • Have a real person review every invoice before payment. You will be amazed what you find when someone looking to save money is examining every penny going out the door.
  • Look at direct debits automatically taking money from your bank account. Consider stopping them all, so you don’t bleed without knowing it. Then, nothing gets paid unless someone looks at it first.
  • Have every team member that spends money sit with their manager to decide where to keep spending and where to stop spending.
  • Solicit NEW cost reduction ideas from every team. Fill up the page. Assess and act ASAP.
  • Office rent costs are being looked at through a whole new lens. Talk to your landlord now about delaying AND reducing rent payments. Get on the phone and ask. Chances are they are really going after those who aren’t paying anything. So as long as you’re paying them something, you may be able to get their cooperation.
  • Talk to your utility companies and any companies you are buying services from or leasing equipment from. Negotiate pain-sharing agreements with them.
  • Cut exec compensation, first and most
  • Salary reductions
  • Job sharing
  • Move to a shorter work week
  • Revisit benefit plans

4. Layoffs, done right

  1. Take action sooner rather than later. Once it’s clear what needs to be done and the decisions are made, don’t wait to take action.
  2. You never, ever want to do layoffs more than once. Doing more than one round will be detrimental to your team morale, not to mention your soul. It’ll be better to cut too many than too few.

Preparing for Layoffs: Be rooted in compassion

  • There are three groups you need to be actively thinking about and caring for: Those leaving, those remaining, the leaders conducting the layoffs.
  • Have the communication plan defined precisely. Choreograph the day to every detail, and script what you will say. Train managers to be empathetic, calm, and consistent, even if the impacted person isn’t.
  • Minimize surprises. Start letting people know about the journey that you’re going on to reduce costs well before the actual layoffs.
  • Make it as easy as possible for departing employees. Prepare the details to make it an easier experience: have paperwork completed, pre-determine final working days, next steps for returning supplies, etc.

Communicating Layoffs: How to do this well

  1. Remember your ‘Why’: You are making these gut-wrenching decisions to live another day to drive more impact
  2. People can usually handle the truth. What they can’t handle is feeling like you aren’t being honest with them, or not telling them the whole truth. Be honest, upfront, and transparent in everything you do.
  • Do it swiftly (ideally all on the same day/week)
  • Take care of people on the way out. Let them know that you and the team is here to help them with their next career steps as much as you can.
  • Listen in the moment. Then, stick to the script. Sticking to the script will help you avoid saying things in the moment that only make you feel better that actually isn’t helpful to the person getting laid off.
  • Ensure your team staying knows their jobs are safe. Assure people that all measures have been taken to avoid future rounds of layoffs.

Life after Layoffs

  1. Is it clear why this happened?
  2. Is there anything we could have done better?
  3. Do you have any questions about our new plan?
  • Be patient. People need some time to process. Studies show 20% decline in performance following a layoff.
  • CEO should readdress what this means for the company, the new organization structure, the go-forward plan.
  • Demonstrate you are more committed to the mission than ever. People will need inspiration.
  • Be extremely visible — change your meeting cadence and show up in new/different meetings.
  • Employees want more metrics and more information than ever before
  • When things get better, try and go back and hire those first people you let go if at all possible. It’ll be amazing what it’ll do to morale.

5. New realities of raising capital

Raising equity

  • Focus on existing funders. All funders will be focused on the needs of their existing portfolio; there isn’t enough new money out there for you to go after.
  • Only the best of the best will get funding. Know that it’s an uphill battle and you need to be able to make the clear argument of why you are deserving more than the rest.
  • Closing is winning: Don’t lose a deal because of price.
  • Ask for 18 month runway; take 12.

Managing existing debt

  • Be proactive. Go now, be first in, have discussions with anyone that you have existing debt. Propose new terms (New repayment plan, refinancing, principal payment deferral, etc). Think through everything you can ask for.
  • Inform your lenders as soon as possible if tripping a covenant, which will help preserve goodwill.
  • Anticipate debt providers want sacrifice from equity players

Grants & donations

  • Grants from foundations: If there is money that is supposed to be coming that isn’t in yet, go out now and ask for it. Pull it forward, move commitments up. Go now, be the first in.
  • Individuals and corporations: whoever your top donors have been, let them know how important this is, and make direct asks for commitments.
  • Restricted cash: Go back to those who gave it to you, and renegotiate restrictions. See if you can get it to be unrestricted — maybe you can get 30% of the restricted money to become unrestricted. Maybe you can get them to advance overhead portions.
  • Credit line: If you have one, you may have to pull it down. Be prepared to be aggressive in surviving what will be a one-year winter.

Communicating with investors & funders

  • No spinning: be honest and transparent.
  • Share a thoughtful breakdown of the impact of COVID19 on your business. Share revisions and scenarios with them. If you go to them and say everything’s going to be fine, they’re going to call bullshit and they are not going to believe you. Everyone is impacted by this, and funders want to know how you’re going to react to it. The quality of your planning and response is critical.
  • Make specific asks. Investors will only be able to respond if you tell them exactly what you need and why.
  • Go on overload in keeping your investors, funders, grantors connected and updated with what you’re going through. It’ll make the asks a lot easier.

6. Your role as a leader

  1. Be first one in, last to leave, and available on weekends. Let them know and see how much you care about surviving, and how challenging this will be.
  2. Say: “This is about survival. It’s going to be difficult” (if it is). Don’t say: “Everything is going to be OK” (if it might not be).
  3. Offer hope. Bring back your mission, vision, and the new reality you’ll get to.
  4. Over engage. Send weekly notes. Ask your CFO / Controller to send weekly updates to your Board. Find ways to over-communicate.
  5. Maintain culture. Maintain existing stand-ups, 1x1 meetings, team traditions. Build ways for your team to connect remotely and maintain culture. Schedule drop-in coffees over Zoom. Keep lighter, sillier traditions alive. Remind your team to take vacation days. Celebrate victories. Demonstrate that you value your team members — especially now.

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Practical support for high-growth social ventures

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