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Adjusting for COVID

By Evan Scarbrough, CPA
October 1, 2020
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With many small businesses struggling to navigate the unknown waters of the pandemic, IMA’s Small Business Committee offers tips for charting a successful course.

 

Though the scale of COVID-19’s impact around the world has created challenges for everyone, the small business community, not just in the United States, has shared its own unique burdens. IMA’s Small Business Committee (SBC) met in July 2020 to survey these issues and identify some of the resonant insights small business owners might keep top of mind as the pandemic’s effects continue to be felt across industries and locations.

 

PRODUCTION AND SUPPLY CHAIN

 

Many entities have had to pivot operations to different, new products to remain operational. Learning from and understanding these ever-changing opportunities is imperative now. One committee member recounted current challenges in her work for a brewing company, such as the inability to sell alcohol to bars and restaurants due to closures. The company changed part of its production into sanitizers, and, when bars reopened, it shifted most of its production back.

 

From a historical perspective, Stroh Brewery Company, which was in operation in Detroit, Mich., until 1999, felt a similar disruption when Prohibition went into effect in 1920. The organization shifted its product lines from beer to ice cream but then continued making ice cream even when the legislation was repealed. With this kind of creative thinking, limitations can present potential opportunities that might otherwise be overlooked.

 

The supply chain has also seen dramatic impacts, with reduced materials available to many companies. Quarantine forums are filled with stories of individuals seizing the moment of extended homestays to do renovations and remodels, but equally common are tales of the requisite appliances being out of stock. The shortages represent a growing issue for contractors and companies in the construction supply chain.

 

The rise of the digital (computerized) supply chain and additive manufacturing (3D printing) could help protect companies from future supply chain disruptions. A digital supply chain uses real-time data to manage the process, material flow, supply and demand planning, cash, and inventory through such tools as AI, Big Data, and predictive analytics. The digital supply chain is a more holistic approach with the most up-to-date information and can be used to thoughtfully address performance requirements. The use of 3D printing has already been used to address supply chain shortages of personal protective equipment at the AP-HP hospital network in Paris, France. This can be applied to other industries where a shortage is found for emergency/replacement parts, production tooling, or high-end parts.

 

BUDGETING AND TIME MANAGEMENT

 

Many states and countries are still in some form of lockdown, and when they will open is unclear. So how do professionals create relevant budgets moving forward? Do companies budget for next year as if these government regulations will continue or plan for a return to normal business operations and not account for a continued COVID impact? Questions like these will need to be weighed and discussed among management teams.

 

Time management and new workplace solutions have been centered in the conversation around what safe offices look like going forward. Stay-at-home orders have prompted organizations to think outside the box with new configurations that not only keep employees safe but also permit them to be flexible around childcare and education demands. Ford Motor Company is allowing white-collar employees to work from home until at least January 2021, and it’s making an investment in renovating its offices so that, in the future, employees will work in an environment with no permanent desk assignments. Organizations must be looking ahead in terms of their IT allocation, implementation, and communication for VPN networks and other security considerations, and employees of course must have fast-enough Wi-Fi when working from home.

 

ACCOUNTING ITEMS AND COMPLIANCE RISKS

 

In the U.S., the Payroll Protection Program (PPP) has had many confusing, and constantly changing, criteria and reimbursement issues. Further increasing the confusion over the PPP, guidance and materials by the U.S. Small Business Administration (the PPP oversight agency) sometimes appear to be out of date. For example, by the time of the SBC meeting in July, the shorter forgiveness application for the PPP hadn’t been posted. This creates enormous concerns going forward as small businesses try to comply with meeting the government requirements.

 

As this process trundles along, companies need to have created auditable information to access PPP funding and other government programs. Failure to create the audit trail results in noncompliance and returning of the funds. So it’s essential to work with external accountants to help determine what will be needed.

 

Policy inconsistency across levels of government has created tensions between business owners and their customers, with some even having seen customers threatening their employees for trying to uphold local and regional governmental orders. A small business may have to choose between alienating customers or risking being shut down for failing to follow government regulations. Management must do the work up front to put in place clear, consistent messaging and plans of action to insulate and contain such crises before they happen.

 

POST-PANDEMIC

 

Going forward, banks (and suppliers) will likely continue to be concerned about the credit risk from issuing PPP loans and other lending (including credit cards) to small business clients. If small businesses are unable to get these funds, does this create a going concern issue for the company or somewhere along a company’s supply chain (which might create the issue for the company)? Businesses should look for other suppliers, determine how best to limit cash outlays, and explore new fundraising options.

 

Even then, surviving beyond government stimulus programs might be an issue. Due to COVID, there has been a reduction in taxes (revenues) and increased need for services (expenditures). If you receive funding from a government, this might be reduced or ended as governments tighten their belts on support programs. Businesses might receive less services in the future as governments reduce overhead (i.e., lay off employees). One way to help alleviate the need is to look for ways to save cash and to leverage technology to reduce expenses. Even if circumstances aren’t dire, the time to start making these adjustments is now.

 

At the core of most COVID-related small business problems is the fundamental issue: convincing customers that they can return and patronize your business safely. Advertising will help, but this is another area where getting creative can sometimes make all the difference. Adding new services like curbside pickup, online classes, or unique offerings like DIY kits for product offerings will entice customers. In other words, look for opportunities around your core business.

 

While the pandemic may be devastating for countless organizations, and entire segments may not recover, it can equally provide an opportunity for other companies to succeed and thrive with the right application of forethought and innovation.

 

Evan Scarbrough, CPA, is an adjunct professor of accounting at Oakland Community College. He also is a member of IMA’s Ann Arbor Chapter. You can reach him at eascarbro@gmail.com.
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