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In this week’s small business focus, we’re talking to someone who was perfectly positioned to help small businesses when the shutdown happened. Regina Unegovsky is the founding attorney of Regal Tax & Law. They’re tax controversy specialists that help businesses out with issues like wage garnishments, bank levies, income tax penalties, and bankruptcy. Basically, if owning someone money is stressing out a client, Regina helps slay those dragons.

Regina closely followed what was happening with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in Washington, DC. The minute it was approved, she acted. Regina recognized that the provisions within the CARES Act would have a profound impact on her clients. She started reviewing older returns and getting client refunds right away. It helped get cash into the hands of her clients long before government relief loan funds had gone out.

As the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) portions of the CARES Act started to take effect, Regina was ready to help clients maintain their payroll and take on that cheaper debt.

Regina Unegovsky Regal Tax and Law small business successNow, she’s working with clients to figure out what’s next. Funds are running out for many small businesses. She’s helping them navigate the difficult decisions like bankruptcy or litigation against non-paying vendors. Regina is also finding them relief from tax debt and helping them renegotiate settlement programs.

Advice for Business Owners

Her best advice for business owners is that this may not be it. There could be a second wave of financial pressure and business owners need to think ahead. The deal to avoid rent now will eventually be due.

Regina thinks many people may consider bankruptcy and if they do, she says get a lot of opinions and get them now.

“Most professionals will give you half an hour or something to get their view. Use this. People are mostly happy to share a little bit of knowledge. Do this ahead of any problem so you have the resources,” said Regina. “You go to the dentist when you notice something wrong, you don’t wait for the root canal. Procrastination is not a strategy.”

As for Regal Tax and Law, Regina is looking towards the future. As a smaller firm, she is already operating lean and mean. She recognizes bigger firms may be laying off quality talent and she’s ready to expand if the right person comes along.

Regal Tax & Law is just one of the many small businesses in the Towne Advisory circle that quickly pivoted and prepared to help clients in the midst of a crisis. For more small business success stories, check out how SchillerLearning began offering options for parents forced into home school. Or how the Wine & Liquor Mart evolved their business to deal with COVID-19. There’s also Security & Cabling Solutions, which is offering safety options for businesses moving forward.

The outbreak of the novel coronavirus and the shutdown that followed forced businesses to take a hard look at their business model. Even small and medium-sized business owners who made it through relatively unscathed are considering cost cutting measures. They’re looking at what they have, what they need, and what they need to do.

We spend a lot of time working with businesses in various stages of development. From the startup to the generational businesses, we’re hearing a lot of the same things from owners. They know they’re doing okay now, but they’re worried about the future.

Longtime business owners know that they need to think long term. They’re not just looking at next week or next month, but next year and three years after that.

Is it Time to Upsize or Downsize?

cost cutting finance accounting saving money small businessDuring times like these, it is tempting to think that cutting is the only solution. However, for some businesses, cutting costs can be more detrimental than helpful.

Before you decide to cut, make sure it’s the right business move. Look at the 1-year and 5-year plan for your business. Ask yourself some of the following questions:

  • What awesome plans do you have in place to grow your business through and out of the recession?
  • What will a strategic pivot or expansion require from your finance and accounting team?
  • What core competencies are you missing from the team to support this growth?
  • How will your new efforts rely on your finance and accounting team?
  • Is there enough capacity on your current team to absorb new people quickly?

Examine these questions. If downsizing is going to hurt the growth of your business and impede your plans, then it may be the wrong solution.

What if I Need to Downsize?

If you’ve looked at these questions and still think downsizing is the right option, then it’s time to evaluate your business. The following are some of the most common mistakes we’ve seen small and medium-sized businesses make with their financial teams.

The Difference Between a Bookkeeper and a Controller

Most often we see business owners that don’t know the difference between a bookkeeper and a controller. Many small companies employ people with bookkeeper skills but give that person the title and salary of a controller.

What is a bookkeeper?

As Monster.com explains, “Bookkeepers oversee a company’s financial data and compliance by maintaining accurate books on accounts payable and receivable, payroll, and daily financial entries and reconciliations. They perform daily accounting tasks such as monthly financial reporting, general ledger entries, and record payments and adjustments.”

In other words, a bookkeeper is responsible for the day-to-day financial tasks a company may require.

What is a controller?

Conversely, a controller does much more high-level accounting work. According to Investopedia, “A controller is an individual who has responsibility for all accounting-related activities, including high-level accounting, managerial accounting, and finance activities, within a company. A financial controller typically reports to a firm’s chief financial officer (CFO); although these two positions may be combined in smaller businesses.”

In other words, a controller is closer to the CFO of your company than it is to the bookkeeper. A controller is responsible for helping prepare operating budgets and overseeing financial reporting. He or she can analyze financial data.

Are You Paying Your Bookkeeper Too Much?

When evaluating your company, examine the level of skill your “controller” has. If that person only has the skills of a bookkeeper, you’re paying too much. If you need more guidance, Robert Half and Associates (which normally places finance and accounting workers) publishes a great guidebook of salaries by title, function, and location.

As the employer, it’s your job to assess the skills of your people and make an honest appraisal of where they fit into your business based on those skills. Make a skills gap analysis to identify unmet needs.

Are your employees in the proper roles within your financial team? Are they getting paid the salary their skill demands and not what their title demands? Compare the skill sets of your current team to what you will need in the future.

You want to make sure you have the right employees in the right roles and that those employees have the room and ability to grow into larger roles in the future.

Cost Cutting by Utilizing Part-Time Roles

Many small companies that we work with are in a transitional stage. They are too small to require high-level employees like a controller but too big to go without them. Going without stops the growth of the business. We have seen a lot of companies hire a full-time controller and then have that person fill a hybrid controller-bookkeeper role. The person does high-level work like cash flow projections, but also work much below their level like writing checks and Quickbooks entries. They are paid at a controller’s salary.

Don’t make this mistake. When a high-level employee uses their time on menial tasks, important issues are often missed or pushed aside. On the finance side, you’re paying extra money for lower-level work.

There is a better option. Consider part-time roles. A part-time accounts payable employee would help free up your controller for higher level, higher value work. Meantime, a part-time controller or CFO can help with month-end closes and quarterly budgeting without the full-time pay.

If you’re worried that these guys don’t exist, don’t worry, they do. In fact, it’s a service that Towne Advisory offers all the time.

How Cost Cutting is Blocked by the “Trust Premium”

We also notice that small business owners reward loyalty or relationships much more than large corporations. Many small businesses we have worked with place a long-time employee or relative in a top leadership position because the owner trusts them. We call this the “Trust Premium”. Many times, this employee doesn’t have all the skills needed for the job, but the trust is worth more.

Paying a premium for your peace of mind makes sense to many small business owners, but often they’re not seeing the financial burden it puts on their company. If your long-time bookkeeper makes little mistakes because of a lack of skill, your CPA is the one to clean it up. That means you’re paying extra professional fees to clean up the work of your employee.

There’s also the worst-case scenario, one that doesn’t get talked about a lot because it’s an uncomfortable topic. With the right opportunity, environment, and motivation, even good people commit fraud. Because the person committing fraud is often trusted, it usually takes small business owners longer to recognize that it’s happening.

According to the Association of Certified Fraud Examiners (ACFE), fraud within a company lasts approximately 18 months before it is reported. Worse yet, a 2016 study by ACFE found small businesses suffered the same median fraud loss ($150,000) as companies with more than 10,000 employees. The ACFE says 87% of the people committing that fraud are first-time offenders.

It is okay to pay a “Trust Premium”, but if you do, also pay for an outside CFO to look at the books once a month. Reconciliations like this can relieve the pressure on an internal employee and give you better information. It will also reduce the risk of costly mistakes or even fraud.

Cost Cutting Through Geography

cost cutting finance accounting savings small business downsizingDo you live in an area that has a high cost of living? Does your team have to live in that same area? If parts of your team can work remotely, why shouldn’t they? In some cases, your financial team will perform just as well with a college grad living in Salt Lake City as it would with one living in Palo Alto.

What if you had accounts payable running out of Salt Lake City, your controller sitting in Wichita, but your CFO sitting down the hall? We’ve seen it work many, many times. Once only feasible for multinational corporations, outsourcing to other parts of the country is now an option for companies of all sizes.

Recent events have forced a taste of this on all companies, so why not try going all the way?

Accounting is unique in that it has its own language. That language can transcend an accent or a foreign language. Given the current economic state, there will be plenty of high-quality talent on the market. Do not disregard a potential employee simply because she lives 1,000 miles away or even 3,000 miles away.

Don’t Let Technology Be a Barrier to Finance & Accounting Savings

As you consider outsourcing, do not allow a lack of technology to become a barrier.

Finance and accounting pros know that it’s important to get the right information to the right people at the right time so decisions can be made. However, because that mission is so critical, we’re often slow to change. Many finance people operate in an “if it ain’t broke, don’t fix it” philosophy.

It’s time to change that way of thinking.

We live in an age of technological marvels that are relatively inexpensive and save a lot of time. Software like Bill.com speeds up your working capital inflow, while Expensify allows for automation of expense reimbursements. There’s file-sharing software like Google Docs and Egnyte and timekeeping software like TSheets and Harvest. There’s so much to choose from!

It may seem hard to justify spending an additional few hundred dollars per month on software licenses but think about the savings. What’s more? The $500 a month you’re spending on licenses or the $2,000 a month you’re saving because your accounts payable manager lives in Salt Lake City instead of Palo Alto?

Cost Cutting by Financing Your Lumpy Expenses

Many small business owners we meet hate payment plans. The idea of being indebted to anyone is scary. However, there are times when it makes sense.

Consider financing your lumpy expenses. Instead of writing your CPA a check for $3,000 every April, what would happen if you paid $250 per month? Monthly payments are often much easier to manage and they may be beneficial to you. A quick call here and there during the year won’t add to the overall bill but will get you better service throughout the year. Speaking from experience, most CPAs are really bad about billing those short phone calls! Just be clear what is in the scope of the arrangement to make sure you know what’s included and excluded from the deal.

Still Unsure?

If you’re still not sure of where to go or what the next steps for your business are, please feel free to reach out to us here at Towne Advisory. We’re always happy to talk through any questions you may have.

A few months ago, we started looking at small businesses within the Towne Advisory circle that are doing great things to help their businesses survive during this COVID-19 crisis. Recently, we talked to Tony Quintong, the owner of Securieon Group.

Securieon is a company designed to deal with times just like the ones we’re facing now. It offers insightful tactics and implementations for founders and investors experiencing pivotal points in their company’s growth. Whether it’s leadership alignment or sustainable and scalable revenue growth, Securieon is there to help its customers succeed.

Tony Quintong Securieon Group small business consulting expertsTony recognized early on that COVID-19 was changing his marketplace. He pivoted his business to focus on business owners facing the difficult question of whether to stick it out or find an exit strategy.

Over the years, Tony has learned that tough times are what precipitate action with business owners. When they feel both an emotional and compelling financial pain, they start to evaluate their lives and business very seriously. As a child, we would play a game and ask for a do-over. An opportunity to learn from a mistake and re-enter the game with a new strategy. Today, COVID-19 presents an opportunity for a “do-over” where business owners can analyze their past mistakes and embrace a new approach to survive. Securieon was there to help them through that.

When he looks at the current business landscape, Tony believes social distancing is here to stay. He thinks there will be a lot less emphasis on in-person meetings for the next three to five years and his company is adjusting accordingly. They’re building and leveraging their technology and being more strategic on the time spent.

His advice for business owners is, you MUST empathize, connect, and lead with a renewed purpose.

“People need hope combined with strategy and decisive leadership,” said Tony. “Life is full of challenges and perplexing situations. In our line of work, you gotta love jigsaw puzzles! Founders need our expertise and years of experience to guide them through the process of fitting the right pieces together for their next move.”

We’re very excited to see our list of featured businesses growing! It’s nice to see so many businesses in the Towne Advisory circle innovating to survive and thrive.

In these incredibly uncertain times, I’m fielding a lot of calls from current and past clients about what they can do to manage the current state of their businesses and hopefully emerge on the other side battered, but still in business and ready to ride the good times upwards. You are not alone!

The problem with a situation like the one we’re facing now is that no one knows when it will get better. It could be next month, it could be next year, it could be a lot longer than that. In the past few weeks, business has slowed in most professional industries. Most companies have gone into a holding pattern as they try to react to what’s going to happen next.

Please do not react, be proactive instead.

If you haven’t read it yet, check out our previous post about how businesses can responsibly and ethically use a situation like the one we’re facing to grow their business.

In this post, I’m going to look at how you can prepare your business for the worst without destroying your team or your business.

Expand Your Customer Base

Now is a great time to look at other avenues that your business can expand to. Some people call this diversifying your revenue.

“If any single buyer represents more than 10% of your business — or your top five clients together account for more than 25% — you need to diversify,” according to Forbes.

Think of this as putting all your eggs in one basket. If you drop that basket, the eggs break. By the same token, if a company that represents 10% of your revenue goes bankrupt, what’s going to happen to your business?

Look for ways to create relationships with new clients. Is there a service that you can offer that will help businesses or people feel safer during these uncertain times? Is there another market that your services can enter into at this time? Is there another use for your services in an industry that is impacted at this time? Once you have revenue, you have choices.

For example, if you normally deliver flowers but your business is at a standstill, can you use those same delivery trucks and drivers to deliver something else? Can you offer your services to a local supermarket? Can you start package delivery for Amazon? You already have the infrastructure set up, can you fill an emergency need and expand your customer base?

Automate

There are hundreds of apps out there to manage workflow within the office, keep track of your social media accounts, and manage your daily calendar.

If you haven’t already, set up some of these apps.

Automation of common tasks within the office will help manage employee time and make your business move faster. A program like Zapier, for example, will help you integrate various software systems within your office.

When you use it, you can set it up to take an order from a customer on your website, create an invoice in QuickBooks, and then send that invoice to your customer through MailChimp all without lifting a finger. Suddenly, a sale is made without a person getting involved. It’s all automated.

When done correctly, automation frees up your employees to focus on what truly matters within your business—serving your current customers and growing your customer base.

Look at every line, not just the bottom line

During good times, it’s easy to look at the bottom line and think if your net profit keeps growing, then the business is doing well. But while you’re watching that bottom line, the number of line items above it could be growing.

Now is the time to stop and take a look at everything your company is spending money on and what percentage of the revenue that spending represents. You need to ask yourself, is this cost essential to the business or is it discretionary?

Note: You should be looking at your spending two to three times a year whether or not the economy is doing well, but at this time, it’s a must-do.

Essential expenses such as salary, taxes, utilities, etc. are expenses that are necessary to run your business. But are there any ways to cut this down temporarily? Or even permanently with technology?

Discretionary expenses such as travel, food allowance, video production, and advertising are expenses can be cut down or cut out if necessary. They are more wants than needs.

Keep that discretionary spending under control. Ask yourself, can this expense be reduced? If it can, then will that reduction hurt the business or the growth of the business? Weigh all of these factors and then decide if cuts can be made.

Odds are, you’ll find one or two cuts that can be made without hurting your business or your business’s growth. You’ll also be able to identify cuts that can be made in the future if revenue streams slow down.

Manage your debt

Once those cuts are made, put that money to good use. Spilt it between paying down your company’s debt and socking the money away.

You do not have to pay down your debt all at once. Some debt is considered healthy for a business and in tough times, it’s important to find a balance between debt and a nest egg. If you’re uncertain, talk to your financial adviser or accountant. Interest that you pay on business debt is usually tax deductible and your tax CPA can advise you on that.

You also need to remember that some debt is worse than others. If you’re feeling uncertain about what debt is “good debt” and what debt is “bad debt” ask us. Every business is different and you always want to make sure you get professional advice for your specific situation.

Keep an eye on what the government is doing

Federal, state, and local governments are all working to make sure that local businesses and workers are not completely flattened by this sudden stoppage. On Wednesday night, President Trump signed the Families First Coronavirus Response Act into law. Among other things, the law creates rules for small and midsized businesses to offer paid sick leave and family leave to employees forced to stay home because of the coronavirus. NBC in Washington has a good Q&A about what the bill means for employees and Inc.com looks at some of the key provisions of the bill as they affect businesses.

States like California are also taking extra steps to try and make things easier for businesses and individuals. California’s Franchise Tax Board has extended the filing and payment deadline to July 15 without penalty. While in Illinois, the Governor’s Office is working to secure federal grants from the Small Business Administration to try and offer relief to small businesses. The SBA is (and has for a long time) had special disaster relief loans which are being strengthened specifically for this time period.

Cities and counties are doing what they can. In the City of San Jose, where Towne Advisory is based, city officials have set up a specific webpage to help small businesses navigate these difficult times and get help when possible.

Keeping an eye on what your local, state, and federal governments are doing will be an important step to making sure your business gets the best help possible.

Please stay safe and healthy.

Ben Towne

No one wants to see something like the recent outbreak of the novel coronavirus make headlines around the world, but it happens. It’s undeniable that the worldwide spread of the novel coronavirus has had an impact not just on our everyday lives, but in the way that we do business. World markets have felt the impact as well as supply chains and to a lesser extent, consumers. And with the full impact of the virus still unknown, the economic impact could get worse before it gets better.

Now businesses can react to this impact in a few ways. Some businesses will conduct business as usual, operating as if the novel coronavirus will have little to no impact on what they do and how they operate. Other businesses will plan for the worst and lose sight of what they’re doing in the present.

And some businesses will see the novel coronavirus as the unfortunate business roadblock that it is. It’s something that exists whether we like it or not and we can either run from it or find a moral and ethical way to make sure our business comes out on the other side of it stronger.

Never take advantage of the customer

Before I get into the ways a business can overcome novel coronavirus and come out the other side stronger, I want to make sure people understand what I’m talking about. In no way, shape or form am I suggesting that a business take advantage of the consumer. Price gouging, also called profiteering, is not only bad karma but it can be illegal.

If you own a company that makes hand sanitizer, by all means, advertise but don’t price gouge.

No matter what you do as a business, remember that human decency should always come first.

Do satisfy a new, temporary need

However, your business can still use a world issue like the novel coronavirus to its advantage. Ruth Fisher, economist and CEO of Quantaa says, “During pandemics and other such crises, people avoid crowds and public spaces. A company can commercialize on this by tailoring products or services to this situation: enable people to access or use the product or service at home or in a venue that’s physically separated from others.”

A great example of this is Netflix. As the New York Post reports, while the S&P 500 lost points in the final week of February, Netflix’s stock rose. Netflix is a company that’s specifically set up for people who want to seclude or quarantine themselves. “Social distancing” as a business model.

Think of this in terms of yourself. What would you do if you were stuck inside all day, whether it’s just for one day or a series of days? There’s a reason why companies like Amazon, Zoom Video, and Netflix as well as work applications like Slack are gaining so much attention during this outbreak.

Sometimes a temporary method becomes permanent

The spread of the novel coronavirus could be the opportunity a company needs to infiltrate a saturated market.

“When the pandemic subsides, a lot of people will have found that the stopgap (temporary) product/service fills their more general needs, and thus adopt that measure permanently,” says Fisher.

In particular, Fisher sees the novel coronavirus as having the potential to speed up current trends in home delivery of products and services, as well as employees working from home.

Company goodwill

Sometimes your company is not in a position to fill a commercial need during a pandemic or crisis. That does not mean that you should pretend that the crisis does not apply to you.

“A company can earn reputational benefits or goodwill by putting the needs of its employees or the community ahead of its own,” says Fisher. “This will increase loyalty of employees or community. For there to be real value (and not just empty virtue signaling), however, the act must be costly to the company.”

Johnson & Johnson, for example, is a leader in the health industry. To date, the company has donated 1 million surgical masks to impacted areas of China, 48,000 bottles of alcohol, as well as money and other supplies necessary for battling the outbreak in China.

Companies like Facebook and Google, who don’t have the healthcare inventory that Johnson & Johnson does, can use its buying power to build company goodwill. According to CNBC, Google will donate $1 million to Mountain View organizations to support small businesses after the company canceled its annual Google I/O conference. Facebook is donating $500,000 in San Jose after canceling two of its conferences in the city. Both companies are also donating millions of dollars in free advertising to help the World Health Organization (WHO) battle misinformation on the internet.

As these actions show, goodwill doesn’t have to be a concept thrown around by valuation professionals, it can be real positive karma that your company builds by the actions it takes in the world.