A New Business Plan

These strategies will help to design a recession-proof business model.

In our current economy, it’s important that commercial investment real estate professionals devise a new business plan to survive, both now and in the future. Currently, business planning is less about expansion and more about survival as customers, vendors, and competition begin to disappear. It also is about doing more with less and being more balance-sheet focused rather than profit and loss driven.

Many commercial real estate professionals would prefer to look past 2009 to 2010 and beyond, when recovery is more certain. However, even the most seasoned companies may not be able to survive without a revised business strategy. Shoring up a company to ride out a recession requires action in many areas to be effective. Below are eight strategies to help commercial real estate professionals and their companies function smarter during the current economic downturn.

1. Remain Positive. A company’s top leaders usually will set the tone that drives the organization. Keeping this in mind, it is important that business owners remain positive, recognizing that failure is not an option. Any hint of the company’s instability could result in the loss of both uneasy clients and valuable employees.

2. Evaluate Assets. Scaling back operations to meet lower demand will yield some idle assets. Whether its extra trucks in a fleet or vacant office space, disposing of the asset or converting it to another income-producing use is a smart plan. If there is extra product, evaluate the market value of vehicles and equipment if sold versus the carrying costs to maintain anything that is not fully utilized. If the decision is to keep the equipment, commercial real estate professionals should cultivate alternative streams of revenue with other billable uses or functions possibly aimed toward a different client base.

Another idea to consider is leasing furnished vacant offices along with shared services to convert excess to income. One way to do this is by determining if obsolete inventory is using valuable warehouse space. Don’t assume that because inventory is paid for that there isn’t an ongoing cost related to storing and handling the items beyond their average turnover or conversion periods.

3. Examine Credit. With billions of bailout dollars transferred from the government to banks through the Troubled Assets Relief Program, credit should slowly become more accessible. While developing a new business plan, it’s essential to accurately estimate cash and credit requirements for the next three to five years using several likely scenarios. Simply getting a loan will not be adequate in supporting a business until a recovery occurs. In the end, it must be the right loan with the right terms and attainable covenants. Keep in mind that restructuring debt along with re-evaluating future cash needs may require outside help from specific TARP task forces along with solid business planning expertise.

4. Eliminate Excess Waste.
 Launching a company-wide campaign to locate and eliminate waste is a smart strategy to incorporate into the new plan. Review every line item in the budget to see how cuts can be made through elimination or re-negotiation. Now is a great time to convert to a paperless work environment since most contracts are awarded based on qualifications that include a company’s sustainable footprint policy.

5. Reorganize Payroll. Payroll is often the first to go under the knife when budget cuts are necessary. Rather than down-sizing, commercial real estate professionals should consider right-sizing. To do so, it is important to review skill sets the most reliable employees have accumulated over their entire careers. An employee may have been hired for one unique talent but may also have experience to perform additional tasks. When combining and eliminating positions an organization will benefit from the continuity in retaining experienced personnel.

In addition to combining jobs, commercial real estate professionals should recalculate the total compensation package and cost to the company versus the benefit and/or revenue derived from each employee when making decisions about temporary layoffs.

6. Cut Back on Auto Expenses. Aside from where gasoline prices are headed, having an auto-expense policy that makes economic sense to the company can be a big savings strategy. Rein in gasoline and other company credit cards issued to employees and brainstorm about which job functions could be performed effectively by way of telecommuting. Additionally, certain states offer tax credits to businesses offering telecommuting options to their employees.

7. Be Careful of Fraud. Economic hardships often lead to an increased risk of fraud within offices. In fact, a recent fraud investigation survey shows that 70 percent of fraudsters were between the ages of 36 and 55 years old; 85 percent were male; 36 percent had been with the company two to five years; and 67 percent participated in fraudulent activities between one to five years prior to being exposed. In almost all cases, the perpetrators were individuals who were highly regarded and trusted by their superiors and peers. Slow time provide a perfect opportunity to document, implement, and monitor stepped-up internal controls.

8. Develop an Exit Strategy. Commercial real estate professionals should recall what the business goals were before the economic crisis occurred. If selling the business or transferring it to a family member through succession planning was the vision, they should seek professional assistance to keep those goals in place.

Richard B. Taylor, CPA

Richard B. Taylor is a shareholder heading up the real estate development group at HLB Gross Collins PC in Atlanta. Contact him at rtaylor@grosscollins.com or (770) 433-1711.