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Short- and Long-Term Planning During an Economic Crisis

Submitted by John Brown on Fri, 09/11/2020 - 8:00am

As I noted in my last article, most professional advisors are task-oriented; they deal with issues specific to their professions because that’s what they’re trained and licensed to do. CFPs create financial and investment plans, attorneys draft estate plans or contracts, and CPAs prepare tax returns and financial statements.  

An economic crisis can significantly affect most of our clients’ businesses. Our clients understand the need for plans and actions designed to mitigate the effects that a crisis is having on their companies. This receptivity to planning presents a huge opportunity for advisors to help their clients and simultaneously grow their practices. 

The challenge for most professionals, however, is how to respond. For most professionals, that means adopting a new approach. They must: 1) proactively reach out to owners, 2) uncover the owner’s greatest concerns and a company’s areas of vulnerability, 3) recommend actions that resolve business issues in both the short and long term. 

Remember Henry Frost from our post last week? His company’s monthly revenue had plummeted (by 35%), and there was no end in sight. Henry’s wife suggested that Henry’s accountant, lawyer, or even a friendly competitor might have ideas about how to turn things around, but Henry was sure that if any of them could help, they would have reached out. None had. 

Henry turned instead to an advisor, Lizette Macron, he remembered from a seminar invitation that he’d received months earlier from his bank on exit and business planning. 

“That’s exactly what I need,” Henry thought, as he emailed Lizette Macron. “I’m running in circles trying to figure out how to deal with the problems this economy has caused.  I don’t have a plan; I don’t know what will work. I just know that what I am doing is not cutting the mustard.”  

After an initial meeting, Henry engaged Lizette to develop and implement a plan to move his business forward. Here’s how she orchestrated her engagement to address Henry’s business challenges and move him closer to an exit on his terms.  

Gather the Facts 

Exit Planning Advisors are trained to begin every planning engagement by gathering the facts because if a plan is to work, it must be based on facts, not owners’ conjectures. They collect data related to current cash flow and business value as well as current business performance. In Henry’s case, Lizette collected information about the performance of his key employees—a three-person management team. 

Identify the Immediate Issues 

Exit Planning is a continuous and usually lengthy process of planning, implementation and adjustment that ends only once an owner has successfully exited the business. Had Lizette offered to help Henry with planning for his eventual business exit, who could blame him for wondering whether she knew anything about issues facing a business in the middle of a historic economic downturn? Henry’s concern about his immediate problems did not leave room for any thoughts about a future exit. He, and owners like him, worry about the state of their businesses today and the uncertainty they see ahead. 

Lizette asked Henry to name his greatest concerns and, by using an assessment (a tool in every BEI Member’s toolbox), uncovered concerns related to multiple facets of his company.  Armed with that information, she was in a positionable to offer possible solutions—solutions with a kicker.  

Make Recommendations with Short- & Long-Term Benefits 

Henry’s most immediate problem was declining cash flow. This problem was compounded by the absence of any means to tie his management team to his company or motivate them to increase cash flow. 

Henry was acutely aware of the need to keep his team together through the crisis, and the fact that he would not be able to increase their compensation. In fact, he could foresee reducing their compensation if revenue didn’t improve soon. He justifiably worried that a salary freeze or reduction would cause some members of his team to take jobs with his competitors. If members of his team left, it would be difficult to maintain even the current level of revenue. 

Short-Term Planning Is the Gateway to Long-Term Planning 

Lizette proposed—and Henry was only interested in—actions that Henry could take immediately to resolve his company’s crisis-caused issues. She recommended that: 

  1. The two of them meet to design a short-term incentive plan to motivate each key employee to immediately increase revenue.  
  2. They base the incentive plan on specific performance standards for each key employee. For example, if an employee takes actions that increase widget sales by 23 per month for four consecutive months, that employee receives $15,000 at the end of that four-month period. The prospect of extra compensation is great for employees, but short-term incentive plans like these also demonstrate an owner’s commitment to their employees and business. 

The “kicker” to Lizette’s recommendation was that the short-term plan led to the adoption of a long-term incentive and retention plan using a different set of standards. The performance terms of the longer-term plan were based upon achieving annual revenue increases necessary to achieve Henry’s financial and other exit goals. Because Henry included his management team in these discussions, his employees realized he was taking actions to survive the crisis and including them in planning for the future of the business.  

This short-term/long-term approach to planning is one experienced advisors use on a regular basis: Solving one of an owner’s pressing problems can secure a long-term Exit Planning engagement.  

Lizette chose just one of the dozens of recommendations available to BEI Members designed to resolve owners’ immediate business concerns. Taking action based on one or two such recommendations can dissolve an owner’s current irritant problems. Making one or two dozen such recommendations constitutes an Exit Plan.  

A Crisis is an Irritant on Steroids 

During this crisis, the Henrys of the world can no longer afford to sit back and put off planning until some indeterminate later date. They must act immediately but, like Henry, they don’t know how. Lizette illustrates how Exit Planning Advisors are proactive and know how to design short-term solutions that lead to long-term planning engagements. 

Do you have the skills, experience and tools that owners need to survive an economic crisis and prepare for the future? We explore that topic in the next article. 



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