5 stages of recovery - reopen eyecare · 5 stages of recovery 5 stages to move from survive to...

5 Stages Of Recovery

5 Stages To Move From Survive To Thrive David Chute w/ the collaboration of The Members Of The ReOpeneyecare Task Force

Reopeneyecare: David Chute, ThinOptics 1

Purpose, Process, Payoff• The PURPOSE of this power point is to provide insights, guidelines

and actionable steps to successfully navigate your business from shutdown back to normal economic times• The PROCESS is to outline 5 steps from SURVIVE to THRIVE and the

critical issues to focus on and manage at each step• The intent is to provide practical, actionable, useful advice, while recognizing

that businesses, circumstances, and abilities will vary making situation-specific recommendations impossible

• The PAYOFF is that - hopefully - the process can provide an ECP with insights and ideas to help them successfully guide their business through difficult and uncertain times


Managing A Business Through Harsh Economic Times Is A Process – Each Step Requires Different Skills


SURVIVE STABILIZELAY

FOUNDATIONS TO GROW

GROW THRIVE

1. Raise cash 2. Conserve cash3. Cut expenses4. Monitor cash 5. Manage P&L

weekly6. Configure for

social distancing7. Have a plan 8. Act decisively9. If you can’t go

the distance,sell or merge

1. Restart sales wherever possible

2. Exit money losing businesses

3. Optimize gross margins

4. Cut fixed expenses

5. Communicate6. Manage P&L

weekly

1. Grow existing business & pivot to new businesses

2. Innovate, test &learn new waysto run business

3. Learn fromvendors

4. Expand margins5. Monitor costs6. Monitor cash7. Manage P&L

1. Invest in sales growth

2. Fix or exit what’s notworking

3. Optimizemargins

4. Add back fixed costs slower than sales growth

5. Train staff 6. Manage P&L

1. Be the best atwhat makes youunique & better

2. Invest in what’sworking

3. Innovate, test, learn, adapt, grow

4. Market your strengths

5. Train, motivatestaff

6. Manage P&L

Rule #1: Don’t Run Out Of Money• If the business runs out of cash, it’s game over• Every major decision should be made in light of how it

impacts cash, including determining if there is enough to make the journey from Survive to Thrive• It’s critical to understand Cash Generation & Use• In it’s simplest form, cash generation & use looks like

the P&L below. • Build one for your business for a typical pre-Covid-19 month• See the cash model in the Financing The Journey Section


ECP Monthly P&L (Illustrative)

Baseline

$ %

Sales- Monthly $ 50,000 100%

Less: COGs $ 17,500 35%

Gross Margin $ 32,500 65%

Less: Fixed Expenses $ 27,500 55%

Earnings Before Interest & Taxes $ 5,000 10%

Understanding and Managing Cash Generation and Use Is Central To Navigating The Journey

• As sales fall, cash will be burned up unless fixed expenses are cut deeply. • If you don’t cut enough, you can go bankrupt• If you cut too much, you may not recover• Losses can quickly become unsustainable if they are deep and long-lasting

• The simple economic model above shows the relationship between sales and cash use without making changes to margins or fixed costs• You may wish to adapt this model to your own circumstances


Illustrative ECP Monthly P&L

$ % $ % $ % $ % $ % $ % $ % $ %Sales- Monthly 50,000$ 100% 5,000$ 100% 17,500$ 100% 25,000$ 100% 32,500$ 100% 40,000$ 100% 45,000$ 100% 55,000$ 100%Less: COGs 17,500$ 35% 1,750$ 35% 6,125$ 35% 8,750$ 35% 11,375$ 35% 14,000$ 35% 15,750$ 35% 19,250$ 35%Gross Margin 32,500$ 65% 3,250$ 65% 11,375$ 65% 16,250$ 65% 21,125$ 65% 26,000$ 65% 29,250$ 65% 35,750$ 65%Less: Fixed Expenses 27,500$ 55% 27,500$ 550% 27,500$ 157% 27,500$ 110% 27,500$ 85% 27,500$ 69% 27,500$ 61% 27,500$ 50%Earnings Before Interest & Taxes 5,000$ 10% (24,250)$ -485% (16,125)$ -92% (11,250)$ -45% (6,375)$ -20% (1,500)$ -4% 1,750$ 4% 8,250$ 15%

10% Sales Decline From Baseline

10% Sales Increase From Baseline

Baseline80% Sales Decline From





Baseline

Sales, Cash Generation & Breakeven – A Graphic Relationship (for those who like graphs) and A Slightly More Detailed Model

• Net Sales• Exams (Pvt Pay + Reimbursements)• Product Sales (Pvt Pay + Copay + Reimbursements)

• Less: COGs & COSs• COGs: Product and lab expense• COSs: Cost of sales = other variable costs

• Equals: Gross Margin• Cash contribution to fixed expenses

• Less: Fixed Expenses• Rent• Labor• Utilities• Other Fixed Operating Expense

• Equals: Earnings Before Interest, Taxes, Depreciation


$ Sales$ Costs$ Profit$ Loss

$ Sales$ 0

$ Loss

Fixed Costs

COGs + COSs

Total Costs

Sales

Loss

Profit

Breakeven Sales: Sales = Total Costs

Key Point: If Sales don’t generate enough Gross Margin to cover Fixed Expenses, business will lose money; need to increase sales, reduce COGs, reduce fixed expenses.

Managing Cash: You Need It To Last• Businesses can absorb operating losses as long as they have sufficient

cash on hand, or can borrow or attract new capital to continue operating • The better the business, the lower the losses and the shorter they will be incurred and

the more quickly the business can return to generating cash

• Cash on hand is known• Borrowing capacity will depend on banks and other entities’

(government, vendors, credit cards, friends, family, people’s) willingness and ability to lend• The better the business, the easier it is to borrow money

• New capital (new equity) will depend on the owners or new investor’s willingness to invest in the business• The better the business, the easier it is to raise money

• Key Points:• In every case, the better the business, the less likely it will be to run out of cash and

the more likely it will be to attract the cash it needs to operate • Better businesses have lower break-evens, higher margins, lower overheads, better

ability to increase sales or manage expenses• If the business can’t make the journey, consider selling or merging or riding out the

storm until better times emerge• Indecision while burning through cash and NOT making the business better or

investable is a serious mistake


A Quick Way To Track Months Of Cash On Hand:

Defined As:

Cash On Hand /Monthly Cash Loss

Example: Bank Balance: $60,000

Monthly Cash Loss: -$6,000

Months Of Cash On Hand: $60,000/$6,000

10 Months

Managing Cash – An Example


ECP Monthly P&L (Illustrative)

$ % $ % $ % $ % $ % $ % $ % $ %

Sales- Monthly 50,000$ 100% 5,000$ 100% 17,500$ 100% 25,000$ 100% 32,500$ 100% 40,000$ 100% 45,000$ 100% 55,000$ 100%

Less: COGs 17,500$ 35% 1,750$ 35% 6,125$ 35% 8,750$ 35% 11,375$ 35% 14,000$ 35% 15,750$ 35% 19,250$ 35%

Gross Margin 32,500$ 65% 3,250$ 65% 11,375$ 65% 16,250$ 65% 21,125$ 65% 26,000$ 65% 29,250$ 65% 35,750$ 65%

Less: Fixed Expenses 27,500$ 55% 27,500$ 550% 27,500$ 157% 27,500$ 110% 27,500$ 85% 27,500$ 69% 27,500$ 61% 27,500$ 50%

Earnings Before Interest & Taxes 5,000$ 10% (24,250)$ -485% (16,125)$ -92% (11,250)$ -45% (6,375)$ -20% (1,500)$ -4% 1,750$ 4% 8,250$ 15%

If Cash On Hand @ Baseline Is Which Is:

1 Months Fixed Expenses 27,500$ 1.1 SURVIVE 1.7 SURVIVE 2.4 SURVIVE 4.3 SURVIVE 18.3 FOUNDATION GROW THRIVE2 Months Fixed Expenses 55,000$ 2.3 SURVIVE 3.4 SURVIVE 4.9 SURVIVE 8.6 STABILIZE 36.7 FOUNDATION GROW THRIVE3 Months Fixed Expenses 82,500$ 3.4 SURVIVE 5.1 SURVIVE 7.3 STABILIZE 12.9 FOUNDATION 55.0 FOUNDATION GROW THRIVE

10% Sales Decline From

Baseline

Months Before Running Out Of Cash With This P&L Is:

10% Sales Increase From

BaselineBaseline


Baseline


Baseline


Baseline


Baseline


Baseline

• The amount of cash required depends on the amount available relative to the amount needed to fund losses before achieving cash breakeven or profitability• Operating with less than 6 months of cash on hand is risky (Cash On Hand/Avg Monthly Loss)

• The objective is to minimize cash loss, and align variable and fixed expenses with sales, as sales are increased by re-building existing businesses and entering new ones• Exit businesses that lose money or can’t cover their costs• Innovate through test and learn as you pivot to new businesses to replace lost old business• Be creative; be bold; ask how your business can be better? More efficient? More compelling?

Sales and Demand: Understand ”The Big Picture”• Sales will depend upon the macro environment, as well as the way the business is run

• If demand and sales are returning, it’s easier to invest in growth. If it isn’t, or if it’s going backwards, it may be time to hunker down longer


Phase LockdownRelaxed Restrictions

w/o Managed Transmission

Relaxed Lockdown and Managed Transmission

Managed Transmission With Therapeutics Recovery

DefinitionGovernmental authorities

prevent anything but emergency

exams and eyecare

Government allows ECP offices

to be open

Offices open and local market is

managing transmission through

testing, contact tracing,

quarantine infected

Offices open, transmission

managed, and effective drug

therapies widely available to

reduce fatality rates and

symptoms

Offices open, vaccines (or herd

immunity) widely deployed to

slow transmission,and in

combination with therapies

reduce fatality rates and

symptoms

Patient and Consumer Sales

Almost none; emergency

eyecare and on-line commerce

Minimal to low sales; emergency

and very needed exams and

eyecare; needed product

purchasing; demand limited by

consumer safety concerns;

lower incomes and higher

unemployment; More demand

in less effected areas

Low to medium sales; exams as

needed and when poor vision

aggravating; needed product

purchasing; demand still

impacted by consumer safety

concerns; lower incomes and

higher unemployment; More

demand in less effected areas

Medium to near normal sales;

most exams performed although

many still deferred; demand

impacted by safety concerns and

economic impact; More demand

in less effected areas

Near normal sales; could be less

demand if economic impacts

linger or consumers purchasing

more on-line; could be more

demand if deferred exams and

purchases are spread across

fewer ECP locations or ECP has

improved their business.

ECP Eyecare and Eyewear Supply

Shutdown to minimal

emergency availability and on-

line sales

Social distancing at work:

spacing out refractions and

eyecare; selling and dispensing;

minimizing transmission;

Pivoting to online

Social distancing at work:

spacing out refractions and

eyecare; selling and dispensing;

minimizing transmission;

Pivoting to online and expanding

on-line efforts

Social distancing at work but

more relaxed procedures;

Pivoting to online and expanding

on-line efforts

Generally normal patient and

customer journeys with residual

safety measures in place;

expansion of best business

practices

Cash Management

Significant cash loss; drawing

down on savings; may need

loans and/or more equity

Potential losses if daily sales not

enough to cover fixed costs;

manage expenses; pivot sales;

may need loans and/or equity

Potential losses or breakeven if

daily sales not enough to cover

fixed costs; manage expenses;

pivot sales; may need loans

and/or equity

Cash generation should be

breakeven or positive; expenses

should be managed; sales should

be more diversified; may be cash

positive

Cash generation should be

positive; expenses should be

optimized; sales should be more

diversified; should be cash

positive

Survive

• Goal: Insure you have enough cash to last long enough until sales are high enough to break even or generate positive cash flow


Stage Of Turnaround

Macro Environment

Sales Typically This Much Below /

Above Baseline

Operating Cash Flow

Months Of Available Cash

On HandPrimary Objectives Primary Areas To Focus On

Cut fixed costs Reduce labor through layoffs/furloughs/wage & hour reductionsIncrease gross margins Partners/owners/managers take pay cutsStop unprofitable sales & activity Understand cash flow and months of cash on hand; act accordingly & decisivelyReturn unneeded inventory Raise cash to get at least 6 months of operating cash on handDelay paying payables Understand business economics and stop sales that lose moneyRaise cash Preserve as much sales as possibleMaximize months of cash on hand When open, make safe and patient/customer friendly Make a plan to go the distance; if you can't make it; sell or merge Communicate honestly, competently, clearly with staff, patients, customers

Stimulate as much demand from current customers as possible

SURVIVEPractices shut or under

severe lockdown; and/or patients/customer

afraid to venture out

Severe & unsustainable

losses at typical staffing levels

Less than 6 months- 50% Or Greater

Stabilize• Goal: Get sales and costs in alignment such that the business is

minimizing monthly losses


Stage Of Turnaround

Macro Environment


Above Baseline

Operating Cash Flow



Reduce unnecessary expenses Analyze cashflow weekly; months of cash on hand; react accordinglyIncrease gross margins Review days and hours of operation, # of staff, wages paid, pricingStop unprofitable sales & activity Review all expenses and only spend on what is necessaryIncrease sales where possible Review all pricing and COGs to increase margins without over pricingidentify ways reduce losses Explore ways to increase sales in new areas (new products, services, customers)Raise cash Explore new ways to get current customers to buy more freqently, buy moreGet cash on hand to 12 months + Expore new ways to attract new customers

STABILIZE

Retail businesses opening up generally; but less demand and fewer refractions &

sales per day

- 30% to -49%Significant but

manageable losses assuming they can

reduced soon

Between 6 to 12 months

Lay Foundation For Growth• Goal: Rebuild profitable existing businesses (clinic, dispensary); exit

unprofitable businesses; evaluate new ways to increase sales and manage the business more effectively and efficiently. Pivot from pure defense to playing offense. Reduce losses to manageable /sustainable levels. Experiment. Think creatively.


Stage Of Turnaround

Macro Environment


Above Baseline

Operating Cash Flow



Increase sales in new areas Analyze cashflow every 2 - 4 weeks; months of cash on hand; react accordinglyIncrease margins Evaluate gross margins, contribution margins, net incomeIncrease efficiency and throughput Reduce unnecessary expensesInnovate in new products Evaluate need to raise more cashInnovate in marketing/advertising Explore ways to increase sales in new areas (new products, services, customers)Innovate in supply chain Evaluate new ways to operate on-line (evaluation, CL sales, frame evaluation, mktg)Test and learn to figure out what works Explore new ways to get current customers to buy more freqently, buy more Expore new ways to attract new customers

LAY FOUNDATION

TO GROW

Eyecare and eyewear demand closer to

normal but sales below normal levels

0% to -29% Small losses to breakeven

More than 12 months

Grow• Goal: Invest in the parts of the business that can be grown profitably;

continue to test and learn and invest where there is success; fix or exit areas that aren’t working well; grow sales faster than expenses in order to be cashflow positive or breakeven


Stage Of Turnaround

Macro Environment


Above Baseline

Operating Cash Flow



Identify profitable businesses and invest in growth Invest in products, services, marketing, cust service that grows salesIdentify successful marketing/products/services and do more of it Experiment with better ways to communicate, sell, market; invest in the winnersExit inefficient lines of business and activities Train staff on what works; shut down what doesn'tInvest in great staff Monitor sales, expenses, P&L, cash gen, customer svc results monthlyTrain good staff to make greatKeep margins up, fixed costs in lineContinue to test, learn, adapt

GROW Sales near normal 1% to +10% Breakeven to small profit Sufficient to grow

Thrive• Goal: Invest in the parts of the business that are profitable and that

provide unique, superior, differentiated exams, services and products; fix (or exit) what isn’t working; invest in marketing and communication to cement your lead and build your brand; continuously learn, adapt and improve


Stage Of Turnaround

Macro Environment


Above Baseline

Operating Cash Flow



Double down on the good/great businesses, products, services Understand your patients and customers and why they buy from youImprove or exit mediocre businesses, products, services Understand why you are succeeding and do more of itInvest in growth; take prudent bets on people, businesses, marketing Improve what isn't working wellKeep margins up, fixed costs in line Continue to experiement with better ways to run the clinic and dispensaryContinue to test, learn, adapt, get better

THRIVERegular business environment with

successful sales and operating plan

10% or more

Profitable and growing and/or

intentional investing for

growth

Sufficent to grow

Now What?• When the environment changes, learning to adapt is key to surviving, then thriving. • Adaptation depends on intellectual honesty; being open-minded; clear, calm, logical

and innovative thinking. • Adaptation also depends on identifying core problems, asking the right questions, and

‘peeling back the onion’ in order to understand root causes. • Once you understand what really needs to be fixed, you can direct effort toward the

things that really matter. • It’s frequently better to do a few things really, really well, than a lot of things poorly.• It’s also useful to remain calm, seek many inputs, think clearly and creatively, and be

open to new and clever ideas. • Panic and stress, while normal, is rarely constructive.• The Reopeneyecare.com website is intended to provide information and solutions to

many of the key issues you are likely to encounter as you navigate from Survive to Thrive


5 stages of recovery - reopen eyecare · 5 stages of recovery 5 stages to move from survive to...

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