• Tue, Jun 30, 2020
  • Economic downturn? Not if you're smart.
  • Article by Gene Marks, published in accounting today, on June 25, 2020.

    Economic downturns are difficult, challenging times for many. But with a downturn comes disruption. And with disruption comes opportunity. If you're a CPA or a finance professional, you've got the chance to help your clients and the people you work for to take advantage of these opportunities. What kinds of opportunities?

    For starters, there's simple cash flow. The next few months will be very difficult, as many businesses try to emerge from their local shutdowns and face lower demand, continuing restrictions and a potential looming "second wave" (see below). As with any economic downturn, cash is always king and you — the finance person — are supposed to be the cash expert. Now is the time to help your clients create cash flow forecasts, analyze expenses and better control costs. Now is also the time to help implement internal controls that help to provide better security of a company’s reserves. And I daresay that while you have your clients’ attention, now is the time to implement a formal budgeting process. It’s all in the cause of better cash management, not just for today but for the long term. The time is right.

    The time is also right to address that dreaded “second wave” that could hit us again this autumn. Then again, it may not. No one really knows for sure. But you know what? As a financial advisor, that shouldn't make a difference. Why? Because the dreaded second wave is only just another potential disaster and no different from any other disaster — natural or man-made — that businesses often face. This is your opportunity to help your clients with a written disaster plan. Hopefully it will not be needed in the next year — or the next five years. But most likely it will be for some other "disaster," and good business owners rely on their financial experts to help them be prepared.

    As mentioned before, cash is king, and even though many businesses have seen their cash flow significantly affected, the good news is that there are plenty of financing sources available that can provide much-needed aid. You're likely familiar with the Paycheck Protection Program and the Economic Injury Disaster Loans from the Small Business Administration. But the CARES Act also provided many other tax credits, deferrals and even changes to the SBA's Section 7(a) loan program that could be a huge help for your clients. Not only that, but many states, localities and big corporations are offering generous grants and loan programs specifically targeted at ailing small businesses. All of this requires financial submissions and documentation, and who’s going to do all that? Not your client — they’re too busy just trying to stay in business. You’re up. 

    I mentioned the SBA's Section 7(a) program above because it's not as well known. But you should check it out. Thanks to the CARES Act, borrowers who close on these loans by Sept. 27 will be given forgiveness for the first six months of loan payments (that could save as much $33,000 on a $500,000 loan). Most importantly, the loans can be for working capital, equipment, real estate and even buying another business. Your clients don't know how to apply and navigate the requirements of all the paperwork required. But you do. Help them.

    And let’s not gloss over that “buying another business” opportunity. Many business brokers have told me that the coming year will be a great opportunity to purchase a business. Why? For starters, the average age of the U.S. small-business owner (according to at least one report) is 50 and 57 percent of small-business owners are part of the baby boomer generation that was born between 1946 and 1964. At that age, people are looking to sell, retire, play a little golf and spoil their grandkids. And after suffering the headaches of the pandemic, many of my clients in that age range have told me straight up that they can’t wait to cash in their chips. Financing costs — especially if the Section 7(a) program can be used — are historically low. Inflation is non-existent, so saving money doesn’t make sense, unless you prefer to gamble it with other peoples’ companies in the stock market. Employee stock ownership plans are becoming more popular. Plus, there’s a growing number of millennials looking to leave their boring corporate jobs and become entrepreneurs. Considering the potential, your clients who are looking to sell or even acquire another business will need an experienced financial advisor to help them with all the numbers and paperwork involved. Are you talking to them about these opportunities?

    Finally, there's people. Maybe you can help with safety and health issues, but I understand if that's more of an issue better handled by a professional HR person. Regardless, there are other potential client services you can perform because the labor market has been seriously disrupted, and with millions of unemployed, there are opportunities for your clients to maybe find a talented person or two. Remember just a few months ago, when this was their biggest challenge? Here lies another chance for you to help your clients search, determine compensation and benefits, and draw up contracts, as well as providing other advisory services.

    Yes, any economic downturn is bad, and yes, people are suffering. Let's not forget that. But the fact is that smart business owners with cash (or available cash) oftentimes take advantage of the disruption these things cause, and by doing so they benefit both their employees and communities. The ones who are most successful at this rely on smart financial advisors to help them. That's you. That's good.

    Steve Niehaus, MBA, CBI
    [email protected]