The security precautions and shutdowns required to reduce the spread of the COVID-19 virus have severely affected small businesses. Many owners are focused on what they can do now to control and plan for cash flow but are struggling to include all the variables at play in their analysis.

Are you wondering how to prepare for tomorrow when there are so many unknowns? Here’s some guidance from XMI’s CFO Josh Farber on how to think about cash in the age of the coronavirus.

  • Conserve cash and keep your business lean by reviewing all expenses. What current costs can you live without? Look for recurring expenses that you can cut and those that you can postpone. Finally, identify expenses that are going away as a result of the pandemic, whether you actively chose for them to do so or not, such as travel for trade shows or reward trips.
  • Determine your breakeven point, where sales cover expenses. To compute this, you must assess your fixed costs, variable costs, and the selling price of your product. Knowing these numbers is essential to the next and most critical step, the cash forecast.
  • If you don’t already have a cash forecast, it’s time to create one. Any cash forecast created before this crisis needs a major overhaul. Most CFOs use a 13-week forecast that examines three components of the breakeven point: the burn rate (a measure of negative cash flow), the week’s cash on hand (the number of days a company can continue to pay its operating expenses with the money available) and fixed costs. “Be realistic and be conservative,” Farber says. “It will be scary, but now is not the time for false optimism. Prepare a new rolling forecast every single week.”
  • Identify and track lost revenue and keep an evolving list of income at-risk. Understanding why you lost sales will help to improve your products and processes and hopefully prevent future attrition. Think long-term. Analyze your wins and losses to generate sustained income growth.
  • Assess your accounts receivable. Are your past assumptions still valid in the current environment, or do you need to take a more conservative approach? Would changing terms help improve collections?
  • Get creative with your customers and your business model. Is online ordering a possibility for your business? Can you offer a deal on gift cards? Are there limited-time offers or promotions that you could launch now?
  • Talk to your vendors. They are also facing challenges and don’t want to lose your business. Negotiate short-term price concessions. Defer payments where possible.
  • Check your state and local resources for up-to-date information about COVID-19, including media briefings and information about services. Some states have loan and grant programs.
  • Contact your insurance company. Some types of insurance, including business interruption, have provisions that apply to COVID-19 business losses related to the coronavirus pandemic.

Making frequent updates to your cash forecast will deliver a clear picture of your cash position. If your week’s cash-on-hand projection isn’t enough, you’ll have to take action. Here are several ways to raise capital.

  • Draw on your current line of credit.
  • Consider increasing your line of credit. Reach out to your banker.
  • Apply for the Small Business Administration‘s (SBA) Paycheck Protection Program (PPP) The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) fast-tracked the PPP, which offers federally guaranteed loans through SBA-certified lenders. PPP loans are forgivable, though forgiveness is reduced with reductions to headcount. “The funds are finite,” Farber says. “Get your application in as early as you can and pick a bank with deep experience with SBA lending.”
  • Apply for an SBA Economic Injury Disaster Loan (EIDL). These loans provide working capital to small business owners faced with a temporary loss of revenue. A $10,000 loan advance is available within three days of a successful application. This loan advance does not have to be repaid.
  • Businesses that already have a relationship with an SBA Express Lender can access up to $25k through the Express Bridge Loan Pilot Program.

While most owners are thinking about conserving cash, you should consider projects and costs that are worth additional spending during this crisis. For example, some employers have opted to invest in their essential employees by giving them a temporary raise. Others are spending on promotions to get new business in the door. And finally, with talented players suddenly on the market, visionary leaders are actively recruiting. By continuously understanding all factors affecting your cash position, you are prepared to spend where needed.

As a provider of human resources and fractional CFO services, XMI is fielding COVID-19 questions from business owners near and far. Each day, XMI is learning more about the business impact of COVID-19, and we understand that it’s a lot to take in. To assist, we’ve created a COVID-19 resource page with free templates and answers to frequently asked questions. Please check back often.

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