LIVE: How to Survive the Coronavirus Recession
This was a live stream on March 15, 2020.
VIDEO SUMMARY
Agenda:
- Status update
- Accountant’s role
- Stock market
- Business strategy
- Government incentives
Disclaimers:
- I don’t give investing advice. Investing is risky. Please contact a finance professional.
- I am a working Certified Public Accountant.
- I am going to focusing mostly on the US economy.
On Friday, President of the US declared a national emergency. Most US states have cases of Coronavirus. As of yesterday, only three states reported no cases.
A look at the Dow Jones Industrial Average shows the dramatic price changes this week. There was a large drop on Thursday, with some price increases at the end of the day on Friday. Thursday’s drop was the second largest percentage drop in history, only passed by the market crash in 1987.
There are regular reports of people buying out supplies in stores, and general panic. The president has imposed multiple travel bans, and many states are shutting down public venues and requiring people to work from home.
I live in Southern NM, there are a few cases of coronavirus in New Mexico, but none of them are near where I live. I do see general panic though. I couldn’t buy any toilet paper.
Do you see any signs where you live?
The purpose of this live stream, is to get together as accountants and finance people and business people, and have a discussion about what we can do in this crisis. What role do we have to play as members of the business community.
My opinion, is that as a business person, our job is to be the calm person in the room. When markets are going crazy, and people are losing their minds, you need to be calm, focused, and rational. If you can be the calm person in the room, you are going to be able to make the right business decisions to get us all out of this mess. Yes, the market is going crazy, and the economy is upside down, but there is a way out of this. And we are going to be talking through some of those ideas.
Stock market. The largest issue right now is the stock market crash on Thursday. What does this mean? Will it continue to crash? Will there be a recession (a decline in GDP for two quarters)? How long will it last?
You need to put Thursday’s crash in perspective. The last recession was the Great Recession of 2008. If you look at a chart of the Dow Jones from 2008 to today, you can see how dramatic the crash is. However, you have to acknowledge that this comes after an incredible bull market. We have had 11 years of incredible growth. Some of this crash, could simply be correcting some over valued stocks. If you have been holding stocks for the last 11 years, you are still doing good. The question is, will this crash continue.
It is helpful to compare the 2008 crash with the 2020 crash. There is an incredibly important difference. The crash in 2020, is entirely from external factors (non-financial). The crash in 2008 was all financial factors. Remember in 2008 that there were all these bad home mortgages, and mortgage back securities that were no good. People had to file for bankruptcy. New regulations and new loan standards had to be created. Banks had to merge. People had to go through the process of foreclosing on their homes and rebuilding their finances. All this stuff took years to fix.
Contrasted with today. Today is all about the virus. There is nothing fundamentally wrong with the economy. There is nothing that needs to be fixed, other than us getting rid of this virus. Theoretically, if we were to isolate everyone in their homes for 30 days and completely kill off the virus, the economy should quickly go right back to normal, because there is nothing else that needs to be fixed. Clearly, it is not that simple, but that is an important difference from the 2008 recession that everyone should keep in mind.
Business strategy. There are two things I want to cover in business strategy. First is Do Not Price Gouge.
Everyone is going crazy right now. There are a lot of opportunities to scam people and make a quick buck. Do not do it. It may seem like a short term way to make a quick buck, but it will have long-term consequences. If you price gouge, people will remember that for the rest of your life. They will remember, that during a national emergency, in our greatest time of need, you used the opportunity to make a quick buck. That will become your brand. Do not price gouge. The opposite is also true. If instead you use this time to help people, people will also remember that. So if you have several boxes of face masks, you could probably sell them for $100 a face mask right now. However, you could also donate them for free to your local nursing home, where they really need supplies. You need to realize, the actions you take over the next 30 days will define your character and define your brand.
Next let’s talk about practical things you can do as a business leader. If you are running a business, you are thinking to yourself, “Holy cow” what do I do? The world has shifted under your feet overnight. Remember that your job as a business person is to be the calm rational voice in the room. In these situations, I always approach the problem from a very practical perspective. I think our role is to always ask the question “what can I do in this situation?” what positive steps can I take to move my business forward? What are the opportunities and threats, and what is the best way to take action? Everyone right now is freaking out. If you can be the calm person and take action while everyone else is freaking out, you will be able to beat the competition and make it through this mess.
Let me give you an example. I was working in the 2008 recession. I was a lot younger and just starting out in my career. I was the assistant to the general manager of one of the largest hotel properties in Los Angeles. We were hit first in the 2008 recession. Corporate travel evaporated overnight, and we had to figure out what to do. This was a massive hotel with hundreds of employees. We had to figure out how to turn this massive ship to react to a new economic reality that happened almost overnight. So what did we do. We pulled all the department heads together. We came up with a new strategy and all the specific tasks each manager needed to accomplish to change course. Now I was no one important at this time. I was just an entry level employee. But it was my job to keep the strategy spreadsheet. This was such a powerful tool. It was a spreadsheet with everyone’s action items. It was my job to track each action item and make sure it got done. And I tracked that spreadsheet like my life depended on it. Because the business depended on it. If we didn’t change fast enough, our business was going to shut down. I can report that not only did we make it through the recession, we came in number one in the region in RevPAR improvement. Which is the most important financial metric in the hotel business.
So we as business leaders are in the same situation today. The economy has shifted overnight. It is our job to figure out what we do next. Bring all your department heads in a room. Come up with a new strategic plan, and build a strategy spreadsheet to track everyone’s action items. If you stay focused, you will get through this.
Let’s look at an example. With today’s situation, a type of business that is probably struggling is a restaurant. People are probably not going to be eating out as much to avoid germs. You are going to have a staff of people to pay, and no sales. So what do you do? You are going to have to get creative, and maybe change your business model. People are still going to need to eat, they are just not going to go out to do it. So maybe start a delivery service. Promote heavily on social media targeted to your immediate area. Turn your wait staff into drivers. There are a lot of apps already out there that people are using now that will help you do this. In seven days, you can have an entirely new revenue stream, while all your competition is probably doing nothing. So I am encouraging you to think outside the box, and focus on the practical opportunities of what to do next.
Something I have noticed about successful business people is they are always looking for opportunities. Even in the worst situations, they are looking for ways to turn it around into an opportunity. The economy is always changing. This is surely a dramatic situation, but the economy is always going up and down. Business people always have to be constantly flexible and adjust to the changing economy. So be flexible, be focused, and you will get through this.
Let us talk about government business incentives. There are a number of really great opportunities available right now. The federal government is offering incentives to help businesses get through this. The Small Business Administration is offering loans of up to $2M dollars, at incredibly great repayment terms and low interest rates. I have been looking at these loans and these are incredible. So if your situation could be helped by a loan that you can pay back as the economy recovers, please check with the small business administration loans. Also, most states are also offering programs of their own. States would be happy to work with your business to find solutions. States do not want you to lay off workers, because the workers would then go to the state to request unemployment insurance. It is to the state’s benefit to keep workers from being laid off, so they would be happy to connect you with resources to keep your business running. So I would encourage you to reach out to your local state agencies that deal with business incentives to see what options they have in addition to the federal incentives. There are lots of options out there that can help you get through this crisis.
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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.