Taking Stock: An Asset Class Checklist

COVID-19 Coverage Planning & Strategy

Last week, we introduced a series of posts about taking a strategic inventory of the assets of your family business.  As the calendar turns to December and 2020 (thankfully!) comes to an end, it is an appropriate time for family business directors and managers to take stock of just where their family business is at this stage in the pandemic.  Doing so can help give needed context to discussions about where the family business should be headed.

We tend to think of a family business’s primary assets under seven broad headings.  In this week’s post, we offer a checklist for directors and managers.

1. Liquidity

  • How effective have the company’s efforts at liquidity preservation been during the pandemic?
  • How have your ideas of a prudent level of liquidity changed because of the pandemic?
  • What is the status of your borrowing base, or other measures of available capacity, under current credit facilities?
  • Are there any debt covenants that need to be renegotiated or addressed considering current company performance?

2. Net Working Capital

  • How have collections held up during the pandemic? Have your credit monitoring efforts with clients kept up with changing conditions?
  • Is there obsolete or aging inventory that can be liquidated? Amid cash preservation efforts, is the company maintaining an acceptable order fulfillment rate, or are persistent backorders straining customer relationships?
  • Is the company maintaining appropriate relationships with suppliers? Is the company taking advantage of available financing options in a financially responsible way?

3. Property & Equipment

  • If the family business has deferred maintenance or capital expenditures during the pandemic, have the deferred items been prioritized for the return of sufficient liquidity?
  • Are there any unproductive operating assets that should be sold?
  • Are there opportunities for the company to acquire existing production capacity from struggling competitors at advantageous prices?
  • If assets are leased from a related entity, do the lease terms reflect market rates?
  • Are there opportunities to negotiate more favorable lease terms on upcoming renewals with third party landlords?
  • How has the pandemic changed the company’s real estate strategy and needs?

 4. Workforce Intangibles

  • If the family business borrowed money under the PPP loan program, has it properly documented eligible expenses and initiated the approval process for loan forgiveness?
  • How has the family business’s workforce held up during the pandemic? What investments are necessary/appropriate to enhance or sustain long-term productivity, morale, etc.?
  • How has the family business adapted to the work from anywhere model? What opportunities or threats does such a labor model present to the family business?
  • How has the pandemic affected succession planning at key positions throughout the company? Have expected transition dates for senior executives been accelerated or deferred?

5. Technology Intangibles

  • What investments in technological infrastructure are necessary for the family business to remain competitive in a “contactless” world?
  • What investments in technological infrastructure are necessary for the family business to remain competitive in a “work from anywhere” world?
  • Has the pandemic accelerated the economic obsolescence of any of the family business’s core technology assets?
  • Is the company’s enterprise resource planning software up to date, and does it provide the right information to the right managers in the right format at the right time?
  • Has the family business deferred any maintenance or development spending to preserve cash during the pandemic? If so, does the company have concrete plans for keeping its technology assets up to date?

6. Marketing Intangibles

  • How has the family business’s overall brand fared during 2020? Are customers and prospects more, or less, aware of the brand than they were a year ago?
  • Does the family business have a cohesive social media strategy, and is it executing that strategy in a disciplined way?
  • How have traditional marketing channels been influenced by the pandemic?
  • Are there any legacy brands or product lines that are no longer viable and should be eliminated?
  • What opportunities are there for brand extensions or new product lines to meet market demand?
  • Are there new geographies or markets that could prove hospitable to the company’s brand?

7. Customer Intangibles

  • How have customer retention trends been influenced by the pandemic?
  • What is the trend in the overall cost to identify, attract, and retain new customers?
  • Are there any new emerging customer concentrations facing the family business?
  • Does the company have any customer relationships that are currently unprofitable? What steps can be taken to improve the profitability of those relationships?  Has the company analyzed the financial and strategic impact of pruning those customers?
  • Does the family business have appropriate tools in place to measure and manage customer engagement and satisfaction?
  • Is the existing sales organization adequate to meet the current challenges facing the family business?
  • Is the company’s customer relationship management software up to date, and is there a process for capturing new customer data as it is being generated?

Of course, this checklist is just a starting point and needs to be tailored to the specific challenges facing your family business.  Some of your family business’s most important assets likely don’t show up on the balance sheet.  Taking a deliberate inventory of all the company’s assets – both tangible and intangible – can be a great way for directors to assess the health of their family business and chart a course for the future.  In next week’s post, we will take a business unit perspective for your year-end strategic inventory.