Jeremy Senften:
Yeah, any great idea is as valuable as the ability to communicate that and execute on it. And I think a lot of that starts with having good documentation.
Doug Houser:
From Rea & Associates remote Newark, Ohio, studio, this is unsuitable, a management and financial services podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture for meaningful measurable results. I'm Doug Houser. On this weekly podcast, thought leaders and business professionals break down complicated and mundane topics and give you the tips and insight you actually need to grow as a leader and help your organization thrive. If you haven't already, hit the subscribe button so you don't miss future episodes. And if you want access to even more information, show notes, and exclusive content, please visit our website at https://www.reacpa.com/podcast, and sign up for updates. This podcast is usually recorded in-person in our Rea & Associates studio in Dublin. However, we record these podcasts sometimes up to a month early, and it's currently early April as we record today. So obviously, like everything else in our world, we're going remote.
On this episode of unsuitable, we're talking to Jeremy Senften, the chief operating officer here at Rea & Associates, to get his take on recession readiness and what businesses can do now to ensure that they are able to stay afloat over the next coming months. This is certainly a time of uncertainty for the business community, and nobody knows what the future will hold. Here at Rea, Jeremy has been grappling with a variety of scenarios for months, long before the coronavirus, in an effort to avoid a repeat of the last recession. Today, he's going to share his insight, best practices and tips you can take back to your own organization as you formulate a plan for survival. Welcome to unsuitable, Jeremy.
Jeremy:
Thanks, Doug. Great to be here.
Doug:
I appreciate you hooking up with us remotely. So, hopefully, you and your family and loved ones are all safe.
Jeremy:
We are. How are you and your family doing?
Doug:
Just fine. It's strange, however, having all of my adult children home at this point in time though. It's a little bit crowded, but people have it far worse. So I shouldn't complain.
Jeremy:
A little less elbow room around the house these days.
Doug:
Yes. My recession readiness plan did not encompass having my adult children at home right now. That's for sure. Which brings me to our topic today. So I know our firm, in particular, has done a lot of work on this topic prior to obviously the COVID-19 crisis. Can you talk a little bit about what we have done historically in terms of recession readiness and planning, some of the lessons maybe we learned coming out of the last recession as well in '08-'09?
Jeremy:
Sure. Yeah, Doug, I'd be happy to do that. So great set up for the topic today. We did, I guess kind of maybe starting in chronological order, we did feel the effect of that last recession, that '08-'09. And in fact, we really didn't feel a lot of it until 2010 at Rea & Associates. There's a bit of a lag from when the recession officially started in late 2008 until when it really started to financially affect Rea & Associates. And so that's one of the first points I want to make is that in making any kind of plan, and especially this recession readiness plan, is to take a look back at the past. And how did the past affect your company? Each company is affected differently based on where you're at in the country, based on the services you provide, based on what you manufacture or what you do as a company.
And the recession affects each company or each sector differently. And so take a look back. And one of my first bits of advice to a business owner or people running a business is to use history to learn a little bit and see what that can do or what that did do to your business. For Rea, in particular, we ended up having to survive in the past, in the last recession, we ended up having to let probably too many people go. That was one thing that we learned, and that's in our profession because we're a service profession, most of our costs on the income statement are tied up in people. So the quickest, easiest, most efficient way to reduce costs or to reduce headcount, and in some ways, that's a good thing and needed, but in other ways, there may be another way to attack it, some other factors to look at to try to set your business up for success after a recession.
Doug:
Yeah. I think a lot of companies found that out in the subsequent years post previous recession is that they in some ways lost a generation of people. I know most financial services companies did, banks certainly did, CPA firms and the like, law firms as well. They eliminated a lot of training programs, didn't invest in that sort of next wave of talent. And certainly, we've all paid the price for that in some regard. Have you seen a change in how not only us but what you see out there in terms of firms dealing with that now, thinking better about that than they did previously?
Jeremy:
Yeah, absolutely. And again, most of my conversation is going to be based on our experience here at Rea. I think it's similar to a lot of companies and can apply to almost a mass, no matter what type of company you have. So yeah, there's a definite change in thinking. So to kind of fast forward from the last recession until where we are now, we've been hearing and everybody's been hearing for years now, probably two years or more, that a recession is coming, a recession is coming. Every economist that you listen to has said that the market's overpriced, there's going to be a correction, there's going to be a recession. And so we hear that just like everybody else. And we decided let's get out ahead of this one. So it was about a year ago. Now, we anticipated a market correction, not a virus, but that's for most people. Maybe Bill Gates and a couple of others had predicted that it was a virus, but for most of us, we were concerned about the market going down.
So about a year ago, as a leadership group at Rea, we undertook the task of putting together a recession readiness plan. And I'll tell you, Doug, that was probably one of the best things we've ever done as a leadership group at Rea. And I'd love to say it's because we have some working crystal ball that we keep secret, but it really was just us doing our job as a leadership group for the 350 plus families that we help support here at Rea & Associates is put together this plan. And so what we did was we, like I mentioned earlier, we looked back at history and did a lot of analysis. How did the last recession affect the different industry types that we serve? How does it affect our construction clients, how does it affect manufacturing?
How did it affect our governments, our medical, and all the different segments of businesses that we serve? We took a look at which parts of our business did it affect first. Some of our more consulting based parts of our business kind of got affected first because they're more an elective type thing for our clients. Some of the things that are strictly compliance, like tax returns and audits that the banks require, those weren't as affected as early and weren't affected as much because there are things that still needed to be done.
Doug:
Still required. Sure.
Jeremy:
Yeah. And so we took a look at it from that perspective, what happened last time. And then we came up with what's our main objective. Everybody's objective in doing a recession readiness plan is to make sure your business makes it through the downturn as well as possible. So that's what you're trying to accomplish. But I think the next question, you've got to ask the second question. And the second question is why you're trying to accomplish that. Are you trying to protect certain products that you're manufacturing? Are you trying to keep the owner comp at a certain level?
Are you trying, and I'll get to what a Rea & Associates, our number one objective was to keep good people. Like I mentioned earlier, we may not have done as well as we could have last time. So this time, hey, we're going to do what we need to do to keep the people that we need to keep. Because when the shift gets righted and we come out of this thing, the firms or the companies that are going to win are the ones that have the right people in place, and the ones that can come out of this thing running not limping.
Doug:
I think that's an important pivot that you talk about there because a lot of times people get into crisis mode when you have a recession. And if you're managing in crisis mode, you're not thinking about capturing the opportunities that are present. I'm a little bit of a contrarian myself. And if you follow Warren Buffet, he's very much in that mold as well. And he would say that during these times of crisis when people have fear, that's when the greatest opportunities can present themselves. But you have to have the resources and capabilities and certainly wherewithal to think about that, think beyond the existing day to day crisis. And I think that's the important message for business owners out there, is okay, whatever your process is, if you're doing financial modeling or thinking about different segments of your business, what's going to be most impacted, think about the opportunities that are going to present themselves and how you can take advantage of that. So, has some of that gone into our thinking as we do some different modeling and have those discussions at a high level?
Jeremy:
It has. And you hit on one point there, Doug, and I guess I want to impress this upon our listeners. The best time to make a plan is before you're in the middle of the fire before things are happening before you could be not thinking as clearly, or you're in panic mode, or oh, crap, this happened, I got to do something now. So when you have a clear head before it happens, make the plan then. And you hit on that, I just wanted to highlight that comment that you made because I think that's such an important part. It's easy to get wrapped up in running your business when things are good. I got a ton of orders. I got to hire people. I got to do this.
And not to take the time when things are going well to plan for when things might not go well, so that's really important. So looking at, I think the second part of your comment or your question there, looking at the different parts of your business and making sure that you plan for how this affects the different service lines that you have or the different products that you make. Take a look at your business, and slicing and dicing it different ways to say, okay, this product that I make or this service that I provide is needed maybe even more in a recession time than it might be before a recession time. So I'll give you an example from our experience. We have HR consulting services at Rea. And pre-recession, we were doing a lot of business there.
Because there are always people issues. Almost every business has people issues. But when a recession comes or when a crisis like right now comes around and you have to start making hard decisions about people and maybe laying off or letting people go, that type of thing, those companies needed more guidance from an HR standpoint at this point in time. So when we looked at our model and we said, okay, what's actually going to go up for us during recession time, you look at HR services and you look at cyber and data security. Because again, in this specific situation that we're in now where everybody's working at home and there are all kinds of private information flowing across different networks that it hadn't before, that's another really important part of our business, and to help service our clients right now is to help them with those things.
So, yeah, it's taking a look at those parts of your business that can go up and that are more in demand during a recession. And then one other part, I mentioned it earlier, maybe there's some elective consulting kind of things that clients generally want to buy, but hey, they're tightening up their purse strings a bit now. And gosh, I really want to do that, but it's not worth spending the money on. And so you kind of take a look at that part of your business too and try to predict where that might go for a period of time.
Doug:
And the other part of it too we can talk a little bit about, ultimately, because this came on so quickly, how do we react and best serve our clients during this period? It's not only our own planning that allows us the time to focus on that rather than our own crisis. But then you think about how that flows through the economy and the communities where our firm has offices and where our associates live and their family. So I've personally spent a lot of time, I know you've spent a lot of time. We have a number of folks who have spent a lot of time trying to guide clients through this process and think differently for them. They oftentimes don't have the resources. So again, that's the other part is don't be afraid to reach out to your other advisors. I know you've done that with our external advisors too, right?
Jeremy:
Well, our external and our internal, Doug, you just helped me earlier this week on a few things related to banking, given your past history and expertise. And so, yeah, that's a great point. I mean, as a business owner, you've got to have those people, and again, have them ahead of time, that you can lean on when it comes, using your accountants and your business consultant that you have here at Rea to help you think through, hey, let's take a look at my income statement and what on here might be some fluff. What's a little excess? What can I do? Or can I talk to my suppliers? Can I talk to my vendors? And how do I renegotiate with my bank? I mean, there's a list as long as your arm of things that you may want to be looking at pretty often anyway, but are even more important in the times that we're in now. And so to have trusted advisors that you can lean on, that you can call and get advice from is very important.
Doug:
Yeah. And I think it's important to be able to show that you've got those resources out there. And we've noticed certainly some of our competing firms maybe haven't had the ability to devote time to provide those resources to their clients because they're in their own crisis mode. And again, that's where it comes back to being able to position yourself and take advantage of those opportunities. Talk to me a little bit about, okay, as we think about, okay, we do this planning at the high level, at the management level of the firm or any business owner gets the management team together and they do this. How do you then sort of disseminating that or communicate that in the proper way down through all of your associates so that everybody knows, hey, we've planned, we're doing the right things, we're thinking ahead? What have you learned from that part of the process?
Jeremy:
Sure. So any great idea is as valuable as the ability to communicate that and execute it. And I think a lot of that starts with having good documentation. So I'll try to quickly walk through our process. As we got our leadership team together, and we've got a spreadsheet, we're accountants, of course, so we love spreadsheets. I created a spreadsheet. And on that spreadsheet, there are somewhere between 40 and 50 items on that spreadsheet. And there are things we could do differently. There are different revenue streams we might look at in a recession. There are of course a lot of different expense line items on there. And so what we did is we took those and we categorized those into three different categories. It's a do it now category, do this when the early recession, when you start to see signs of the recession and then do these things last.
So there's about a third, a third, a third in each one of those buckets. So we did that, so we have a document in place. So we documented it, we've categorized the things that we came up with that could be effective in either helping to drive more revenue or save expense. So, I mean, both of those things should help. And then what we did was we got our segment leaders and our industry leaders inside the firm involved. And those are the people that are day to day in touch with our clients. So the head of our manufacturing, the head of our construction, head of medical dental. We get all of those people and we plugged them into the plan and say, hey, we need you to talk to your clients. They should be all the time anyways.
But especially as we see one of these recessions or downturn coming, we need you talking to your clients and basically gathering frontline information. Those are our leading indicators. So if we talk to our manufacturers and their orders are down, well, that's a pretty good leading indicator that their business may be seeing some contraction, which means Rea & Associates business may see some contractions at the same time. So it's communication, it's getting other leaders in your company or your firm involved because they're the ones with boots on the ground every day. And they can give you insights that you can't get because you're one person or you're three people or you're five people that are trying to manage this thing.
Doug:
Yeah. I think that's an excellent point because so many, obviously, in this current crisis, so many segments have seen a different impact. I know obviously for my client segment in construction, they've been impacted somewhat, but by and large, certainly spared as compared to many segments. And construction is still ongoing now. And yet, you look at say dental or restaurants, things that went from essentially 100 to zero overnight, now that's a whole different animal and requires different planning. And how do you help those clients get through and things like that? So there's just so much that goes into it. What do you think, from your perspective, what's been the most difficult part of this process, this recession preparation? And now that we're in at least a temporary recession, what's been the most difficult part for you?
Jeremy:
It's probably been the most difficult part for everybody, it's predicting the future. So this one specifically, is it going to last another month? Is it going to last another two months? Is it going to last six more months? What does the last mean? And so then you hit on earlier, lasting for dentists and restaurants maybe, okay, we can finally put people back in our doors in June. That may be the hope there. But what's the ripple effect of that? I mean, did your business take such a substantial hit that it's going to take a year to get out of it? Are your customers going to come back right away? Did they go somewhere else? Did they disappear?
I mean, and so in thinking about that from our perspective, at Rea's perspective, I kind of mentioned it already, but taking a look at our different service lines, [crosstalk 00:20:34], at dental... The first one we looked at was dental, medical, and restaurant. Because those are the first ones that were hit. And so how's that going to affect that part of our business. And we have a lot of dollars in billings to clients, so how are they being affected? How can we help them through this, but then where are they going to end up on the other side? So it's really that crystal ball kind of thing and predicting the future to me has been the most challenging so far in this one.
Doug:
Yeah. The uncertainty, as you say, it's so great in this sense. I think many people are talking about certainly a new normal post-crisis here and what that looks like. As you said, I don't think we have those answers at this point. But one thing I am certain of is that there will be a new normal, in some sense, whether it's certain industries or businesses, as you said, or even telecommuting. Obviously we're all working remotely. We were deemed an essential business by the governor of Ohio, so we're fortunate in that we're able to still work and serve our clients. But you think about telecommuting and then it gets into future planning. What kind of real estate do you need? What kind of office footprint? So have you started to think sort of post-crisis with some of this planning at this point, or have we not gotten to that point yet? What's your advice for business owners in that regard?
Jeremy:
Yeah. And we have, and you should. I guess those are the two quick answers. So yeah. We have started to think about, what does it look like on the other side of this? And so you brought up the big one, Doug, telecommuting. We've done some of that. And we've had the ability to work remotely for years at Rea & Associates. Now we've never stressed the system and have 350 and 360 people working remotely at one time. We had to ramp up for that in about a week and a half, so kudos to our IT team and people they work with to be able to do that. And so far, knocking on wood right now, but so far it's worked out pretty well. But so what does the future look like from a telecommuting?
And so the factors there, you hit on one, do we need as much real estate? Are we going to the hotel more? You see that already in cities like LA and New York, where real estate is expensive and traffic is terrible, and all of those things. We've seen some of that already. And we have a little bit of a model for that. But now, I see that being more of a mainstream Midwest kind of thing after this. Because we're figuring out, every day, we're figuring this out and we're getting used to it. And we're finding out that people can be productive at home. The old school thought was, they're working from home, that must mean that they're taking a nap for two hours at lunch and they're walking their dog and they might get three hours of work done in eight hours today.
That was kind of that old school mentality about telecommuting. But now we're figuring out that people actually can get their work done and be efficient at it. And some people would argue they can be even more efficient at home. So looking at that, and then I've mentioned it earlier too, but just the importance of data security when it comes to a remote workforce. And so how is your network designed? How is it set up? Where are the weaknesses? What can you do better to make sure that that information and data flows quickly, there's functionality? So most networks are set up to work inside the four walls of your business. But so how do you redesign that to work out in 350 different sets of four walls rather than 12? And so those are some of the points that we talked about and we're looking at and preparing to run our business a little bit differently in the future.
Doug:
Yeah. Those are great insights, and I applaud you for your efforts with our firm and helping us think forwardly and do all of that. I think the key is to plan, document, and communicate certainly, and get the right people involved. So thanks for being on Jeremy. I very much appreciate your insight today.
Jeremy:
Well, thanks for having me, Doug. It has been great.
Doug:
Good. I'm glad you enjoyed it. If you want more business tips and insight, or to hear previous episodes of unsuitable, visit our podcast page at www.reacpa.com/podcast. And while you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show. Be sure to subscribe to unsuitable on Apple podcasts or wherever you're listening to us right now, including YouTube. I'm Doug Houser. Join us next week for another unsuitable interview from an industry professional.
Disclaimer:
Views expressed on unsuitable on Rea Radio are our own and do not necessarily reflect the views of Rea & Associates. The podcast is for informational and educational purposes only, and is not intended to replace the professional advice you would receive elsewhere. Consult with a trusted advisor about your unique situation so they can expertly guide you to the best solution for your specific circumstance.
