Do you know what will happen if your company ignores the H1N1 virus? The financial impacts could be devastating. There are tons of articles on H1N1 business preparation. I have not seen a single one on corporate financial business preparation for H1N1. That's why I wrote this. The most successful CEOs and CFOs are planning for the worst. They understand what their financial results could be if it gets bad. They feel good because they are financially prepared and have done risk analysis and financial scenarios. They determine what will happen if their customers aren't buying because they're sick. They figure out in advance what can happen to their company's financial position if they can't deliver their products because many of their employees are sick or out taking care of loved ones. Business owners and CEOs that aren't paying attention will be in for surprises.

As a business owner or CEO, you have to make a choice right now. You can ignore this and hope your company won't be financially affected. Or you can get proactive, assume the worst, and figure out in advance the financial impacts H1N1 could have on your company. Do it yourself or get help.

CxO To Go can help business owners/CEOs by forecasting financial impacts. That way you know in advance what could happen. We help you eliminate surprises. Contact Sales@CxO To Go or call 303.995.4523 for assistance. When you do the right things, your employees, bankers and lenders appreciate you and get a good feeling that you're on top of it. That's worth money.

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Below is two scenarios at two different companies. One did not prepare for H1N1. The second one did. Learn how the second one stomped their competitor.

Company A - Acme Lack of Attention, Inc. (ALA):

Its October 2009. H1N1 is all over the news. How much this is really going to be a problem? As a business owner, how much time should I take to deal with this? Not a ton of cases have been reported in Colorado. The CEO of ALA, Inc. believes its just media sensationalism about something that only impacts 0.0019% or Colorado’s population. What if you’re wrong? What if 50% of your employees are gone for weeks at a time? No problem. See what happens to John, the CEO of ALA, Inc. (a ficticious company).

First, John has seen the news and read some articles. He even has looked up information on websites. He's still not convinced he should take his eye off the ball at his company...he's been working on closing some big deals. This can wait, he thinks. Here's some of the news and facts John has read: 

• Thinking ahead makes business sense, according to according to Dr. Mac Clouse, of the University of Denver Daniels College of Business. Clouse said employers should want their sick employees to stay home. "If you come to work even though you are deathly sick because you don't want to get your pay from that day and you come in and get three or four other people exposed, now the boss has a problem of not just you with the swine flu, but all of the co-workers you are close with," said Clouse. Clouse said he thinks employers should extend sick days or find a way for employees to earn them back.
• In August 2009 Commerce Secretary Gary Locke briefed reporters on recommendations for U.S. businesses at a press conference alongside Homeland Security chief Janet Napolitano and Health and Human Services Secretary Kathleen Sebelius.The three cabinet secretaries said each company must develop its own unique plan. The officials declined to give more detailed instructions, explaining the scope of a potential outbreak is still unclear. Given that they really don't know how bad it could be, I have one question for business owners and CEOs: How much risk are you willing to take by not doing what you can to protect your business?
• The World Health Organization has estimated that up to 2 billion people could be sickened during the swine flu pandemic, which already is known to be responsible for more than 1,400 deaths. "The government can't do this on its own," Locke said. "For this effort to be successful we need businesses to do their part."Guidelines posted over the last month recommend businesses develop plans for operating with reduced staff, in the event of a flu pandemic. Homeland Security chief Janet Napolitano said "The country needs to be prepared but it also needs to be resilient."

·         The wave of flu is expected to span 4-6 weeks although there will be earlier and later cases. Pay attention to the red line below. That's the trend right now for all Influenza-Like Illnesses (ILI's). Successful CEOs know that now is the time to act before its too late. John does not believe his company will be impacted financially. So he ignores the following information.

       The weekly updated graph is at http://www.cdc.gov/h1n1flu/updates/us/#iligraph.

       John looked at the CDC website briefly several weeks ago and found the first graph. He thought, "That's not too bad - I don't have to worry."

I started writing this article three weeks ago, and was surprised at the difference when I updated it. See how the increase in widespread occurrances has changed.

As a business owner or CEO, you have to make a choice right now. You can ignore this and hope your company won't be affected. Or you can get proactive, assume the worst, and figure out well in advance the impacts it could have on your company. In this scenario John chose to ignore it.

Zoom forward to February 2010, five months from now. H1N1 is still all over the news, but very different stories have emerged. The second wave is much worse than the first one in November. There are tens of thousands of H1N1 cases reported in John's state. The pandemic has hit hard and John's customers aren’t buying  because they can’t work due to their illness and their families’ illness. John has noticed that his cash flow is down and everyone is talking about H1N1 and not working much. John comes into work and realize that a fourth of his employees are not at work today. Like always, John simply reacts. He scrambles around putting together meetings to deal with it. He takes his eye off the ball and his customers are feeling like they aren’t getting the attention they deserve and are going elsewhere. John's company is in turmoil, but hey, he can put in 120 hour weeks because he's done it before.

John sees groups of employees turn around and walk away when they see you. They're busy talking about what to do in case it happens to them. They worry about how to deal with it, and what happens if they get H1N1 or their kids or parents get it. 

John has to lay off people because his profits have declined and he has become non-compliant with your line of credit or borrowing base. John's company shrinks and has to spend time with banks, accountants, employee relations, and lawyers, which results in his customers getting even less attention. They go elsewhere. John realizes he made the wrong choice back in October 2009 and wish he had done things differently. John is approached by his largest competitor to buy ALA, Inc., and since his cash dried up, his choices are now very limited. John's exit strategy was to have a company buy ALA, Inc. for $10M in 3 years. Now his only choice is to get taken over by his competition and they are offering him a one-time deal of $1M, which is simply 1X of EBITDA. Six months ago that number would have been 3-4X. That will only cover the increased debt and leave you personally with less than a year’s salary. John's choices have become very limited. Nice job, CEO John. 

Company B - Acme Proactive, Inc.:

Its late October 2009. H1N1 has been all over the news, yet only 100 or so cases have been reported in Colorado. You’re a smart business owner/CEO and you have thought about what H1N1 might do to your company. Your Chief Financial Officer calls you in for a meeting. In this scenario, Mark is the CEO and Keith is the CFO. It goes like this:

CFO Keith says to CEO Mark: I’ve been following H1N1 and have concerns about how it will affect our business financials. I believe we need to be prepared in case it really takes off like the news and the CDC says it will. 

CEO Mark: That’s just media sensationalism, I don’t have time to worry about that right now, I’m too busy.   

Keith: Yes, that’s what I thought, too, however one of the most important jobs you and I have here is to consider all things that could impact our business now and in the future. The good, the bad, and the ugly. So I put together three scenarios I’d like to review with you, is that OK?

Mark: Well, I guess I have a few minutes for you, my friend, if you think its important.

Keith:  I see that small businesses don’t expect H1N1 to impact business operations. I happen to disagree. I wondered what medium companies know that small companies don’t? Do you want to be in the 11% that have no plan in place?

 Copyright – 2009 - beyondmortar communication solutions inc. www.beyondmortar.com. Used with permission.

Mark: Well, do we really know how bad H1N1 Swine Flu will be? What are other executives doing?

Keith: Good question. 19% of C-Level and VP executives have no plan and are looking for a solution. A large percentage don’t believe they will be impacted, which makes me wonder if they are simply not doing anything to prepare.

Copyright – 2009 - beyondmortar communication solutions inc. www.beyondmortar.com. Used with permission.

Keith: The reports are that it could be like every other flu season, or much worse. We should plan for the worst, even if it never happens. I put together worst case, realistic case, and best case scenarios so we can see what will happen if 50% of our people can’t work because of H1N1 – that’s the worst case. The realistic case is that 20% of our workforce can’t come to work, and the best case is 10%, which is minimal impact from not only H1N1, but that’s what we had last year in a normal flu season.

Mark: We have made it through several recessions. Keith, your insight and diligence kept us not only afloat, but we still grew during and after this last downturn. In fact, we would not have been able to purchase our largest competitor for pennies on the dollar without you. I trust you, Keith. 

Keith: Yes, the most successful businesses spend the time and money to forecast what they think will happen, good and bad. Especially with H1N1. Unfortunately for them, our largest competitor didn’t get it, and lost their company to us, which doubled our market share. I’m so glad you get it, Mark. When things happen, our company can reach out and turn on “switches” that were already setup and ready to use if needed. If we didn’t setup those switches before the last downturn, we’d be sitting here wondering what happened, and may have gone out of business. Like the 1 in 270 companies that went out of business this year. Or worse, we could have been taken over by a competitor. Instead, you and I both sleep well at night because we already know what to do, have already planned for the worst, and don’t have to guess or make hip-shot decisions reacting to things we did not foresee. I feel better every day knowing this, don’t you?

Mark: I sure do! That’s why you are so valuable to us, Keith. You taught me how important that is.

Keith: Thanks, but that's what a good CFO should do. I’m just doing my job, man.

Mark: Please show me your scenarios.

Keith: Let’s start with the best case, where 10% of our employees can’t come to work. I’ve calculated our sales will drop 4%, our profit will drop 10%, our cash position will decline by 8% over the next quarter and we’ll have to tap our line of credit 15% more than usual in two months.  

Mark: Wow, and that’s the best case?

Keith: Sure is. Now let’s review the realistic case where 20% of our workforce is not able to work. Sales will drop 11%, our profit will drop 15%, and our cash position declines by 13% over the next quarter. We’ll need to see if the bank will increase the limit of our line of credit, since we will overshoot our goal of keeping it under 50% of available funds in the line. I’m sure the bank won’t be accommodating if we wait till then to ask them.

Mark: That’s 22 people not able to work. Wow, we need to start talking to the bank right away.  

Keith: Yes , we do. When I show them our calculations, they’ll understand and appreciate that we are financially sophisticated enough to nip this before it becomes a problem for us and for them.

Mark: What is the likelihood of this realistic case actually happening? 20% seems high to me.

Keith: Yes at first glance it does. Think about it, though. H1N1 affects children, and younger people up to age 25 the most. We have 88 people. 20 of them are single mothers, and average 2 children each. If half of them have kids who get H1N1, 10 employees are out for potentially weeks to take care of their kids. You know the schools are telling parents if their kids have even a cough, to keep them home. In fact, October 22, 2009 study says that after the fever, the virus is still contagious for 24 hours. Now we take into account our actual employees getting sick. So just 12 more have to actually be sick, which will put us at 20% of our people out, and very possibly at the same time.

You and I are the key people in running this company, so if one or both of us are out for weeks or dies from H1N1, we have to prepare for the worst.

Mark: OK, this is not good. Show me the worst case.

Keith: I put this together so we already have a plan in place in case things get really bad. The likelihood is low, but you and I will know what to do. 50% of our workforce is unable to work for weeks, our sales drop 40%, our profit drops by 50%, and our cash position is, well, desperate. We’d need to double our line of credit just to get by. I’ve been teaching my staff how to do my job in case something happens, and you always know that I have other CFO friends that can step in if needed. We can keep this business going, but will have to shrink in order to grow again after all this passes.

Mark: You are my trusted advisor, Keith. I sure appreciate that you care so much about me and my company. Now that we are well prepared for anything, please go talk to the bank and get that line increased. You’ve kept us under the 50% line of credit usage since you came on board, and the bank really likes you. Say hi to Brenda at the bank for me.

Its now February 2010. Mark and Keith meet again, briefly.

Mark: Looks like your realistic scenario panned out. I would never have thought we’d have 19% of our company missing for weeks. We only had 5 people that got H1N1, and all other flus, but the rest had to take care of loved ones who did get it. I’m sure happy we spent the time and effort to set us up for no surprises. We simply had to reach out and turn on some switches, rather than running around and reacting to what happened and taking our eye off the ball.

Keith: Yes, I’m so happy you get it, Mark. We would have had many late nights trying to figure out how to react. But instead we planned. We were proactive and we are on target to meet our new growth objectives for next quarter and all of 2010. Acquiring our top competitor gave us a nice boost in our market share, and we continue to gain customers. Your dream of a $10M check in 3 years will still happen.

Mark looks at Keith with a warm smile.   

Summary:

I hope one business owner reads this and in March 2010 looks back and says, I’m sure glad I read that article and got financially prepared. I also hope that business owners realize they have a choice to make right now. Not next week, not next month. It takes a little time to put together financial scenarios, so if you get started this week, you’ll feel good knowing you’ve got a CFO that has your back.

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Call or email us to get your business prepared for H1N1. Contact us today at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 303.995.4523. We help companies plan for what could happen, and you can feel better about your business every day. CxO To Go. Do what you love…we’ll do the rest.

Written by Marty Koenig, Founder and CEO of CxO To Go LLC

Disclaimer: This article does not contain medical advice or financial advice. See your doctor for medical advice. See your CxO To Go CFO for financial advice.