For many A/E firms, it is going to take a lot of tough decisions, hard work, mental intensity, and help from everyone in the firm to get through this situation intact.
One thing is for sure. This pandemic is not affecting every A/E firm the same way. There are two ends to the continuum of how impacted individual firms’ financial situations are.
Some firms – for example, those that do largely infrastructure projects for government clients – are seeing little to no reduction in their backlogs and workload. They are just chugging along pretty much as normal except for the fact that most everyone is working from home with perhaps some minor decline in worker productivity and profitability. But they have no immediate threat to their survival.
Other companies are devastated. Those that do residential interiors in New York City or design new chain restaurants or hotels have seen workloads evaporate. They are wondering how they can quickly change direction to get sufficient work to survive – even though that could be in a new form with much less work and staff.
The situations of each of these two types of companies is vastly different and their management teams’ concerns are is wholly different.
I don’t worry too much about the fate of the first group of companies. They are going to make it through this thing and if they run into financial problems it won’t be in the near-term future. Don’t get me wrong. I’m not saying that their success is assured. It isn’t. Longer-term, their city, county, state, and federal government clients could have budget problems and things could still get ugly for them, but the threat to their survival is not urgent now. These companies are dealing with issues of revising their business plans and protecting the health and well-being of their people, some of whom are probably going to be back in the office soon. Reconfiguring their office spaces to support physical distancing, deciding who can continue to work from home, cleaning procedures, and PPE for their people will be their immediate concerns.
It’s the second group of companies – those that may have seen 80 percent or more of their work evaporate overnight – that I worry most about. Some of them are owned and managed by people who simply don’t know what to do next. No one knows exactly what the future holds, yet there are still some steps that can be logically taken that will help these companies survive to another (and hopefully better) time in the future. This scenario or some variation of it could be as many as 60 percent or even 70 percent of the companies that make up our industry. And when I say “industry,” I am strictly speaking to the professional services side. I won’t address construction contractors and subcontractors because their businesses are much different.
If this last scenario sounds more like what you are going through, here are some sensible things you can do that could be essential to your survival and future prosperity. Some of them are going to affect some of your people significantly and will be tough to implement, so I don’t want to sound insensitive to that. Yet sometimes tough decisions have to be made to keep the life boat from sinking and drowning everyone on it.
- Eliminate all non-essential costs. This means anything and everything is up for grabs. Get your CFO involved. Go right down the list of line items on your P&L reports and cut everything you can. Business travel, outside auditors, sports tickets, trade show participation, company cars, etc. Cut it all. You can bring anything you deem worthwhile back in the future.
- Move out non-productive owners. If not now, when will you do it? We all know who these people are. The case has probably been there for a while. Cutting at the top is absolutely essential. Especially if you want the rest of your people to see you are taking serious steps to protect them.
- Attack in all marketing fronts. Now is not the time for an elaborate plan and budget. It is the time instead for a lot of timely action. Talk to all clients and potential clients to learn what they are doing and how you can help them with their challenges right now. Put your brand-building marketing activities through social on hold and instead focus on timely and helpful information that shows you are plugged into what is happening now and have ideas that can help your clients.
- Honestly assess your deficiencies in the new market conditions you are operating in and if one or more key people are needed to address those, start recruiting those people immediately.
- Honestly assess the prospects for work in each of your key sectors and, if diversification to new markets is going to be essential, start recruiting those key people who have an ability to bring work with them to you immediately.
- Work on your communication with all of your employees collectively as well as each of the individuals who you deem need special attention now, and keep everyone informed of your plans and activities.
- Implement any necessary pay cuts with the principals taking the biggest hit first. Commit to paying these cuts back that any or all of your people take through a new short-term bonus plan tied to achieving certain positive cash flow goals.
- Talk to your lenders and keep them informed of the reality of your situation. Get their authorization in writing to stall off any loan payments you can and release you from any covenants tied to your accounts receivable line of credit even if only temporarily.
- Pay minimum amounts on your credit card bills and stall off all payments that you can to the last minute before incurring late charges or ruining a critical business relationship you depend on.
- Cut all unnecessary travel immediately and try to do necessary travel by car. Internal meetings or office visits would be the first travel to go.
- Do anything and everything you can to protect your workers who have to leave their homes. Physical distancing inside the office, staggered office hours, deep cleaning, and PPE should all be considered.
- If additional capital is needed, look to the principals to bring it to the company one way or another, even if that means dipping into their retirement funds or getting home equity. This situation will clearly show who believes in the firm and is committed to its survival and success and who isn’t.
None of these things is revolutionary at all. Short of a vaccination or widely available effective treatment for COVID-19, there won’t be a magic bullet here. For many A/E firms, it is going to take a lot of tough decisions, hard work, mental intensity, and help from everyone in the firm to get through this situation intact. You can do it if you really want to, though!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at firstname.lastname@example.org.