Post on 09-Oct-2020
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
Reopeneyecare: David Chute, ThinOptics 2
Managing A Business Through Harsh Economic Times Is A Process – Each Step Requires Different Skills
Reopeneyecare: David Chute, ThinOptics 3
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
Reopeneyecare: David Chute, ThinOptics 4
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
Reopeneyecare: David Chute, ThinOptics 5
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
Baseline65% Sales Decline From
Baseline50% Sales Decline From
Baseline35% Sales Decline From
Baseline20% 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
Reopeneyecare: David Chute, ThinOptics 6
$ 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
Reopeneyecare: David Chute, ThinOptics 7
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
Reopeneyecare: David Chute, ThinOptics 8
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
80% Sales Decline From
Baseline
65% Sales Decline From
Baseline
50% Sales Decline From
Baseline
35% Sales Decline From
Baseline
20% Sales Decline From
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
Reopeneyecare: David Chute, ThinOptics 9
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
Reopeneyecare: David Chute, ThinOptics 10
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
Reopeneyecare: David Chute, ThinOptics 11
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
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.
Reopeneyecare: David Chute, ThinOptics 12
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
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
Reopeneyecare: David Chute, ThinOptics 13
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
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
Reopeneyecare: David Chute, ThinOptics 14
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
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
Reopeneyecare: David Chute, ThinOptics 15