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Consumer companies: Strengthen your financial footing, operations, and culture

February 7, 2022 Article 5 min read
Authors:
Lisa Plonka Mark Fleischer Dean Feenstra
Many consumer-focused companies have seen a period of greater stability over the past few months, but continued vigilance will be critical in the coming 12 to 18 months. Consider the following five actions to improve resilience and mitigate risks.
Store owner hanging an open sign in the front window.Many consumer-focused companies are breathing a sigh of relief, having seen a period of greater stability over the past few months. This is especially true for consumer businesses that took advantage of incentive programs such as the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC) and for those that monitored cash flow, retained their core management team, and communicated closely with customers, staff, and suppliers. Greater constancy has been a welcome shift. But no matter how your business was impacted, be it positively or negatively, by COVID-19-related shutdowns and other disruptions over the last 18 months, continued vigilance is critical.

Consumer-focused businesses will want to maintain a strong position — financially, operationally, and culturally — to overcome new challenges that may arise in the coming 12 to 18 months. Whether due to the pandemic, supply chain disruptions, or other types of business interruption, consider the following five actions to improve resilience and mitigate risks.

1. Address talent management, acquisition, and retention

By far, the greatest challenge across industries continues to be the fight for talent. Consumer-focused businesses having the most success in this arena include those that take multiple approaches to recruiting, maintaining, and motivating talent and set their sights on creating a world-class culture.

Are your staff excited to come to work each day? Do you offer development and training opportunities to help them realize their career objectives? (Do you know their career objectives?) What are the perks that will make your business stand out from the many others also seeking qualified, reliable talent? Now’s the time to “get creative” with the incentives and programs you’re offering to current staff and prospective hires. Things like flexible workdays and time off, athletic reimbursement for health and fitness memberships or equipment, or stipends and reimbursement programs for childcare can set you apart and help you both hire and retain the top talent you’re seeking.

When it comes to your management team, are you helping leaders perform cohesively? Role alignment is often overlooked in the talent retention equation. Are you aware of the signs of misalignment that could be negatively impacting your business and its service to customers and clients?

2. Watch for tax changes and review ERC tax credit eligibility

Recent actions in Congress, namely passage of a bipartisan infrastructure spending bill and consideration of the Build Back Better Act set the stage for further tax changes. While the specifics are uncertain at present, we anticipate potential increased tax liabilities for high-income earners and business owners in future years. Beyond new legislation, other tax changes have recently taken effect based on prior Congressional actions.

One silver lining is the ERC tax credit, which has had a powerful impact on cash flow for many consumer-focused companies, helping them sustain operations during the pandemic. The IRS recently offered guidance on ERC questions many consumer-focused businesses were asking related to inclusion of COVID-19 relief funds in gross receipts and the treatment of tips when calculating qualified wages.

Currently, we’re discovering that many consumer-focused businesses that didn’t believe they were eligible for the ERC do in fact qualify. Our team has discovered many overlooked — and, often, significant — opportunities for clients.

We’re discovering that many consumer-focused businesses that didn’t believe they were eligible for the ERC do in fact qualify.

We recommend consumer businesses look into the ERC tax credit immediately. Employers can go back to 2020 or the first three quarters of 2021 to take advantage of the credit. The ERC benefit has been repealed for the fourth quarter of 2021, underscoring the urgency.

Another tax-savings opportunity that’s commonly overlooked is the Work Opportunity Tax Credit, which  has been extended to Dec. 31, 2025.

3. Review financial plans and ensure adequate capitalization

As you consider the impacts of the ERC tax credit and other incentives on cash flow, revisit your 16-week and longer cash-flow projections. Be sure to take into account any new support from these programs. Then, stress test your projections. Consider multiple scenarios when projecting operations — best, worst, and most likely.

Ensure you have availability on your lines of credit and other credit facilities. Particularly if you’ve received Main Street Lending Program funds, refinanced debt, or had covenants restated, be sure you clearly understand the calculations, effective dates, and the impacts of violations. Talk to your lenders to avoid surprises at year-end.

4. Assess cyber defenses, PCI compliance, and IT infrastructure

Hacker creativity continues to evolve, with breaches increasing in sophistication. Is your business protected? Double-check PCI compliance. If you’ve added new functionalities or platforms or upgraded existing applications, have you assessed potential new weaknesses? Consumer businesses have had to react quickly to changing circumstances to sustain operations and for many the shift to online ordering and remote work during the pandemic may have impacted compliance. Now, too, consider taking a step back and assessing technology strategy, needs, and resources with a longer-term perspective.

5. Solidify operations and innovate

Amid so much change, don’t lose sight of what’s made your business successful in the past. Use data to evaluate recent trends. Keep close watch on your KPIs to help you understand what “normal operations” mean now and to help anticipate your customers’ changing needs in the future. Anticipating those changes is challenging, but it’s more important than ever. The same factors that created a strong foundation pre-pandemic are still key: Maintain focus on your customers, staff, and profitability.

The same factors that created a strong foundation pre-pandemic are still key: Maintain focus on your customers, staff, and profitability.

Consumer-facing businesses showed remarkable innovation in response to the COVID-19 pandemic. Going forward, creativity and innovation will help set you apart from competitors as consumer-buying habits keep changing. What other opportunities can you see? What’s been successful elsewhere that you could apply? Are there additional or alternate ways to deliver your product or service? New markets you could serve? Don’t stop asking those questions; keep that creative process going.

While recent months have brought a sense of stability to consumer-focused businesses, risks remain. Strengthen your financial, operational, and cultural positions now to better weather potential future disruptions, in whatever form they may take.

As always, if you have any questions, don’t hesitate to reach out to us. We’re happy to help.

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