The document provides guidance for firms to evaluate their financial viability during an economic downturn. It recommends estimating cash flow by projecting income from different types of projects over time and accounting for costs. If cash flow is negative, firms will need to borrow funds or tap reserves. It also suggests controlling costs by reducing variable costs where possible without laying off essential staff. Finally, the document stresses the importance of clear fee agreements and collecting debts while continuing to refine skills and services through downturns.

1. W
hile some firms are looking at stimulus funding as a means for survival and others are seeing projects
restart or develop because equity funding is being used to take advantage of decreased construction
costs, many firms are still in jeopardy. Here are some procedures to evaluate and preserve the viability of
a firm:
Estimate Cash Flow—Income and Costs Over Time
Divide projects into “known,” those that seem definite; “likely,” those that are more likely to proceed than not;
and “speculative,” those with a high degree of uncertainty. Allocate income for each project on a spreadsheet,
showing when fees will actually be received (rather than invoiced). Set out the business costs across the same time
scale, analyzed with as much detail as possible.
The product of deducting costs from income over the period will show positive or negative cash flow. If it is
negative, a plan to keep paying bills is needed. That means borrowing or tapping reserves. Consider the resources
required for different volumes of work ranging between the realistic anticipated minimum and maximum, and what
this will do both to costs and to cash flow. Be especially concerned about vulnerability caused by relying on one or
two major clients.
Work Out Your Capital Needs
The amount of capital required is linked to the scale of the business. Going in and out of debt is a sign of being
undercapitalized. More capital can be provided by investment in the business on the part of managers and
sometimes on the part of staff, by external shareholders, or through debt. Obviously, the less debt during troubled
times, the greater ability to survive a recession. Remember: tax payments are essential. Some partnerships expect to
pay taxes out of future cash flows, but this is not possible when the market turns down.
Make Clear Fee Agreements and Chase Debts
It is difficult to collect a fee if there is no clear agreement on compensation. Some clients may use doubt as a
basis for postponing payment. Similarly, do not carry out additional work without a clear indication that money is
properly authorized and allocated for payment. The first step, however, is to determine if a client can pay, then make
sure accounts are paid on time. Arrange to have fees paid regularly and look for the earliest warning of non-payment.
Any delay is troublesome; make an individual responsible for chasing debts.
Control and Reduce Costs
Look at the scope for reducing costs, addressing which are fixed and which are variable. Savings are likely to
mean a reduction in staff, but remember, terminations are expensive and so is recruitment and rehiring. Do not
assume that you can turn an employee into a consultant to save money; there are specific rules that identify a truly
independent contractor. It is possible for employees to privatize themselves, set up their own mini-practices and
work partly for you, but care has to be taken to meet legal and tax requirements.
Check Your Financial Health
Management Advisory

2. Make Hard Survival Choices
When faced with making staffing cuts, some firms focus on collaborative working. Job sharing, partial reductions
in paid hours, rotating staff furloughs, and proportional pay reductions must be carefully structured. Such “share the
pain” options, however, call for transparency to demonstrate that they are not simply to preserve profit. Attempt to
preserve your greatest asset, your reputation. You have been “building your brand” by highlighting differentiation.
Throwing out long-term strategy for short-term tactical advantage—such as indiscriminate cost-cutting or fee-
cutting—is ill-advised. If you do not insist on being paid properly, there is probably no limit to how much work you
can get, but competition on price is disastrous for firms.
Keep Refining Your Skills and Marketing Your Services
Even during recessions, there are projects out there. Many firms aim at the same sectors—healthcare, energy,
infrastructure. Larger firms might act in a predatory manner to go after projects they cannot profitably perform just
to aid their cash flow, so your reputation and special skill sets must be emphasized. Firms need to invest in training,
research, and planning. When prosperity returns, the market for services will never be the same. It is vital that a firm
can respond to those differences in the face of growing competition and client demands. Recessions can provide the
impetus for firms to reinvent their operations and prosper in the rapidly changing environment for professional
services.
Victor O. Schinnerer & Company, Inc.
© 2010, Victor O. Schinnerer & Company, Inc. Schinnerer’s risk management resources have been prepared solely for the purpose of sharing general information
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