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The U.S Small Business Administration (SBA) announced changes to the Economic Injury Disaster Loan (EIDL) program. Effective September 8, 2021, small businesses can apply for support until December 31 or deplete the available funds. Furthermore, small businesses can borrow up to $2 million and update existing funds to cope with COVID-related financial disruptions.

What Are The Key Changes To the EIDL Program?

The SBA released the Interim Final Rule to implement the changes to the Disaster Loan Program. These changes apply to all applications submitted on or after September 8 or COVID EIDL applications submitted before but approved on or after September 8.

  • The loan cap has been increased: The SBA has increased the loan cap from $500,000 to $2 million. Businesses that also applied for a loan before the changes can also apply for a loan increase. In addition, businesses under a single corporate group can apply for up to $10 million.
  • Interest: The interest rate for for-profit small businesses is 3.75% and 2.75% for nonprofit organizations over 30 years.
  • Amortization: While the amortization period is fixed, businesses can now defer payments for the first 24 months from the original closing date. During this period, interest and payments shall accrue. The borrower shall then make loan prepayments over the next 28 years. Fortunately, there are no prepayment fees or penalties.
  • Use of funds: The SBA has expanded the use of funds for expenditures and debts. For example, working capital, rent, maintenance, commercial debt, federal business debt, cards, payroll, and healthcare benefits. However, small businesses cannot use the funds to expand their business.
  • Amount: For businesses requesting $500,000 or less, the SBA considers if the business was operational before January 2019. In its calculation, the SBA considers double the business’s 2019 gross revenue and subtracts the cost of goods in 2019 to find the loan amount.

For loans above $500,000, the SBA will calculate the loan amount and conduct a cash flow analysis.

  • Exclusivity Period: From September 8, 2021, the SBA started accepting loan applications. Loan approvals are underway for loans below $500,000. Other loans will be disbursed from October 8, 2021. The thirty-day exclusivity period (September 8 to October 8) ensures that the smallest businesses access relief first.

The SBA is also optimistic about reviewing loan applications above $500,000 within six weeks to expedite the fund distribution. Businesses can also apply for extra fund amounts, but they should prepare for a long waiting period, approximately nine months, if the first loan is below $500,000 and the second above $500,000.

  • Guaranty: No personal guaranty is required for loans below $200,000. A personal guaranty from all individuals and entities that own more than 20% of the business is required for loans above this amount. The same rule applies to corporations and partnerships where an individual or an entity owns more than 20%.

If no one owns more than 20% of the business, at least one person must provide a full guaranty. Sole proprietors, independent contractors should also provide a personal guaranty. For general partnerships and limited liability partnerships, all partners should provide a personal guarantee.

  • Collateral: You do not require collateral for loans below $25,000. However, for loans above this amount, the SBA uses business assets such as furniture, fixtures, equipment, and machinery. Also, if you qualify for a $2 million loan but only have $500,000 collateral, you don’t have to fund the collateral gap.

In addition, if your business owns real estate and qualifies for more than $500,000, the real estate and property should be listed as collateral.

  • Loan forgiving: EIDL loans are not forgivable. However, businesses can also apply for advances under the COVID EIDL program. Fortunately, businesses do not have to repay these advances.
  • Fees: There are no application fees for loans below $25,000. However, for loans greater than $25,000, there is a one-time $100 fee. A one-time $100 fee for loans above $500,000 also applies when the SBA accepts real estate as collateral. The applicant shall also cover any associated costs with recording the real estate lien.

EIDL Program Background

The COVID EIDL program provides businesses with relief funds to alleviate the adverse effects of the pandemic. The fund aims to provide working capital and operating expenses to help keep small businesses afloat.

EIDL loans are different from other disaster recovery loans. This program allows the SBA to provide low-interest, fixed-rate, and long-term loans for small businesses to help them recover from the effects of the pandemic. The relief ends on December 31, 2021, or when the funds deplete, or whichever comes first.

The funds come at a critical time following a report by Goldman Sachs that shows 44% of small businesses have less than three months of cash reserves. As such, small businesses are likely to collapse if another COVID-related emergency should arise.

The research further revealed that the pandemic affected small businesses disproportionately. More than 51% of black-owned small businesses have less than three months of cash reserves.

Keep in mind that businesses cannot specify the loan amount. Enterprises can send their applications, but the SBA calculates the loan amount based on the economic injury. Economic injury is the change in the financial situation of a small business because of an effect of a disaster. In this case, the economic injury funds, EIDL, are being distributed following the COVID pandemic.

Am I Eligible for COVID EIDL Funds?

  • A small business qualifies if it has less than 500 employees. This includes businesses and their affiliates. However, the business must not have more than 20 locations.
  • Agricultural enterprises qualify if they have less than 500 employees.
  • An individual or sole proprietorship that operates without staff or as an independent contractor.
  • A corporative and its affiliates with any, with less than 500 employees.
  • A small tribal business with less than 500 employees.
  • An affiliate can apply for the loan if the qualifying entity has an equity interest or profit share of 50% and above.

Applicants must show “substantial economic injury” caused by the pandemic. The injury includes events that cause the small business:

  • Be unable to meet its obligations as it matures
  • Fail to pay its operating expenses
  • Market or produce services as marketed

The fund further emphasizes support to hard-hit industries. These include:

  • Accommodation and food services
  • Apparel manufacturing
  • Arts, entertainment, and fitness facilities
  • Clothing and clothing accessory stores
  • Educational services
  • Mining
  • Non-internet broadcasting
  • Non-internet publishing services
  • Personal laundry services
  • Rental and leasing services
  • Site seeing and scenic transportation
  • Sporting goods, books, and music stores
  • Transit and ground transportation

Who Is Not Eligible For COVID EIDL Loans?

  • Small businesses that were not in business before January 31, 2020
  • Businesses that do not meet the program’s size limitations. Employees are capped at 500 and 20 for physical locations for companies with multiple locations and affiliates.
  • Businesses engaged in illegal activity at the federal or state level.

What Can I Use The EIDL Funds For?

If you have applied and qualified for the EIDL funds, you need to channel the money to allowable uses. Many business owners are concerned about spending the funds incorrectly. Generally, it’s best to have a strong accounting program to track your spending for business visibility and future scrutiny by government agencies.

Working capital

Businesses have both to-date and future expenses. Usually, to-date expenses are reported as liabilities in the accounting books and which a business cannot fulfill due to the pandemic. In this case, the business can use the EIDL funds to pay debts and bring the working capital to normal levels.

Future expenses are business needs the entity cannot fulfill throughout the injury period. This refers to payments such as fixed debt payments and fixed payments such as rent, insurance, and utilities. In addition, businesses can use the funds to pay commercial debt such as credit card debts, lease payments and mortgage payments, and federal debt, including payments to the SBA. Debt payments can include monthly installments, prepayments, and deferred interest.

What Can’t I Use EIDL Funds For?

  • The payment of dividends and bonuses.
  • Payments to directors, partners, directors, stockholders, and officers.
  • Payment of stockholder or principal loans except when non-payment would result in hardship to the stockholder and when the stockholder injected the fund due to the disaster.
  • Expanding the business and acquiring fixed assets.
  • Repair physical damage to the business.
  • Payment for relocation.
  • Penalties for non-compliance with laws.

How to Apply

If you have already applied for a loan with the SBA, sign into your portal and find Form 4506-T to apply for the new revised loans. New applicants can submit the same form by visiting here. In addition, applicants should be ready to release tax forms to the SBA for revenue verification.

How to Make the Best Use of EIDL Funds

As a small business owner, it’s crucial to apply for the EIDL funds to recover from the COVID pandemic. However, once your loan is approved, the next step begins- spending the funds. Therefore, it’s essential to plan your finances and account for all the spending for compliance reasons.

Talk to one of our financial experts to discuss how Signature Analytics can help improve your financial decisions.

Strong leaders are always thinking about the future. Forward-thinking is an essential part of business leadership to guide your employees and steer your company in the right direction.

In uncertain times, it is important to understand many different outcomes that could take place. Trying to build a model based on multiple possible outcomes is challenging.  You may find that you need help.

Finance and accounting leaders within an organization frequently need assistance predicting their cash needs, drawing a mental picture of potential profitability, and learning how to make better data-based decisions for the company.

To plan for the future effectively, a leader must develop a financial model whose aim is to forecast a business’s results over a set time frame.

Read More: Financial Tips From Successful Leaders

Given the current environment, we recommend creating a nine-month cash flow forecast to support your business through whatever comes your way.

We recommend keeping three possible business scenarios in mind:

  1. Your original plan
  2. A probable case based on current data
  3. The worst case

To help you, we suggest brushing up on those Excel skills to create more elaborate and complex financial models. These models will enable you to modify assumptions giving you the ability to see the outcomes immediately. If you are not an Excel guru, don’t worry, even a simple financial model will provide you with better insights into your business.

3 Scenarios And What They Tell You

  • The original plan scenario should be your current strategic business plan and budget for the year. If you do not have a budget, you can create this model, as outlined below. This scenario acts as the baseline for the other two scenarios.
  • The probable case scenario is what you expect to happen based on current information. For some businesses, this could mean growth, and for others, it may mean a reduction in revenue.
  • The worst-case scenario should depict what the business would look like if revenues drop, are delayed, and/or unforeseen expenses occur. This scenario reflects the most serious or severe outcome. In this scenario, forecasting in this way is critical, so preparations can be made to ensure the business can still operate under adverse circumstances.

Read More: How to Develop a Strategic Financial Plan for Your Business

Original Plan Scenario

The best approach to building these scenarios is to start with the original plan. Your original plan scenario should be the easiest to forecast, and you might already have it if you created a strategic business budget for the year ahead. The numbers used in the original business plan will act as the baseline for creating the other two scenarios.

A quick way to get started building the financial model is to calculate a monthly average of the last 12 months for each expense category. At Signature Analytics, we recommend companies break down their expenses into categories or buckets to understand their business expenses better.

Once you have that data, use this average as the baseline amount for each expense account. Then ask yourself, is this baseline still a reasonable estimate to help forecast for the next nine months?

Depending on your income channels, revenue can be forecasted using the 12-month average. If you have more accurate data, then, by all means, use it. For both revenues and expenses, look back at the same months in the previous year to see if any seasonal patterns or trends should be reflected in the forecast and make adjustments where necessary.

Lastly, if you never created a strategic business plan and budget for the year, there’s no time like the present to get that started, so you are not flying blind over the next several months.

Read more: Download our Strategic Budgeting eGuide

Probable Case Scenario

Once the Original Plan has been created, determine what percentages (these would be increases or decreases) of revenue and expenses should be applied.

Manual adjustments can be made to any of the monthly numbers based on knowing future activities within the business. Think through possible disruptions to your employees, your supply chain, and your clients.

Worst Case Scenario

The final scenario is weighing in the negative impact of disruptions to your employees, your supply chain, and your clients. You might approach this as a broad decrease in revenue (15%, 25%, or even higher) to understand how that would affect your business and your liquidity.

Scenario planning should bring to light any warning signs that can trigger major strategic pivots to decrease a company’s risk.

One other helpful tool in scenario planning is to utilize storytelling. The Wall Street Journal reports that “data-driven stories enable a team to picture the various futures the organization might face; strong narratives challenge conventional wisdom and management’s assumptions, but should be logical and plausible.”

Remember, forecasts by nature are not factual; but, having the ability to use available forecasts to develop scenarios can provide some relief.

Final Thoughts: 

Simple scenario analysis allows you, as the business leader, to work through the assumptions and influences that directly affect your business. This creative and focused thought process can support you in times of high stress when making thoughtful, yet data-driven decisions for your business beyond that “gut feeling.”

If you need help with creating different financial models to support various scenarios, Signature Analytics has a full staff of CFOs and accounting experts to support you and your business. When you are ready, contact us to get started.

  • Do you spend late nights and weekends struggling to keep up with your company’s accounting records? Or worse, does this time intervene with the time spent running the operations of your business?
  • Are you unable to assess the profitability of your business or perhaps have difficulty understanding the cash requirements for the next 60, 90, or 365 days?
  • Do you feel your margins could be improved but aren’t sure how to evaluate them when looking at your financial statements?
  • Would some assistance in projecting your business operations over the next few years help you establish priorities with your employees?

If you answered yes to any of these questions, then you are in good company. Many business owners and executives feel the same way and there are ways you can get the support you need to move your business ahead.

Free Download: Discover how outsourced accounting can provide more visibility into your business

The first step is acknowledging that, although operations are the most key aspect of any business, accurate financial information is vital to making important business decisions. Having visibility into cash flow and knowing where your margins can be improved will enable you to take your company to the next level.

Now the next step is determining if hiring a full-time accounting resource to get your company’s financials in order makes sense from a cost and expertise standpoint.

  • Is there enough work for a full-time accountant? For many companies, a 40-hour a week accountant would be in excess of the time required to perform the basic accounting functions they may need, e.g., monthly close process, issuing invoices, entering and paying bills, performing payroll, etc.
  • Is there too much work for your current full-time resource? And are you asking them to do things beyond or below their skill set? This is a very common occurrence with any role in a growing business. This is a lose-lose situation for everyone involved and can lead to internal turnover.
  • What level of experience will they need to have – CFO, controller, staff accountant? If you are not in a position to support the costs of more than one accounting resource, will you hire a CFO and then over-pay them to do basic staff-level accounting? Alternatively, you could hire a staff accountant and task them with CFO responsibilities; however, both of these options can cost your company significantly and lead to ineffective decision-making.

If your company needs the resources of a complete accounting team but is not in a position to support the costs and management time of that entire, full-time team, then outsourcing your accounting functions is a very viable, flexible, and turn-key option for your business. 

Read more: 3 Ways Outsourcing Accounting Can Improve Your Business

Outsourced accounting companies such as Signature Analytics provide you with flexibility in terms of the number of hours of service to receive, provide a higher level of experience through oversight by more senior-level individuals, and ensure efficient service by experienced accountants (staff accountants through CFO level expertise). The accounting teams at outsourced accounting companies work with multiple clients so they have identified time-saving methods that allow them to complete challenging tasks in significantly less time than a typical bookkeeper.

In addition to acting as the financial arm of your business by providing the resources of a highly experienced accounting department on an outsourced basis, there are a number of other situations in which hiring an outsourced accounting company to handle your financial information might make sense for your business:

Preparing for a financial statement audit or review

Many business owners believe that a financial statement audit is a healthy process for their business and provides confidence to their investors in the financial information; however, most do not realize the resource drain that an audit can have on their business due to the significant number of requests for supporting information and the technical accounting expertise which must be applied to the financial statements. Due to independence restrictions, audit firms cannot assist in performing the accounting functions at the companies they audit and therefore must rely on management to determine proper accounting rules. These issues tend to cause significant overrun bills from the audit firm due to the inefficiencies experienced and can be extremely costly for a business. Engaging an outsourced accounting company can provide management with the peace of mind that they have a team of accounting experts – most of which have previous experience performing audits – that understand what audit firms are asking for and know how to produce that information in a timely manner.

Investors requesting financial projections

Investors love to see what the future of their capital will produce so that they can assist in both financial and operational decisions; however, many business owners do not have the expertise to prepare financial projections and therefore may provide information at a level not detailed enough for the purpose or may be missing significant costs which need to be considered. Outsourced accounting firms that provide support with cash flow management and projections have CFO-level experts who are experienced in understanding a business operation in a very timely fashion and can translate such information into the future potential results of the organization.

Missing out on potential tax savings

When a tax provider receives your financial information they may not search into all of the accounts to find tax deductions. If transactions have been classified to incorrect accounts, tax preparers may not be aware of their existence and therefore not consider simple deductions. A simple example would be meals & entertainment expenses, often a deductible expense, in which some transactions may end up recorded in office expense categories or supplies or miscellaneous. Unless the tax preparer knows that such expenses may be improperly classified, the deduction will go unreported resulting in higher income tax. An outsourced accounting company can organize accounting information and work directly with tax professionals to help identify as many tax savings as possible.

Looking for capital investment from financial institutions

Perhaps you have a capital requirement in the near future and plan to approach different financial institutions. Providing financial information with obvious errors, inconsistencies, or lack of organization could severely impact your ability to raise capital as it may be challenging for the lenders to truly understand the results of the business without transparent financial information. When hiring an outsourced accounting company, you can be confident that the financial statements are timely and accurate. Furthermore, they will provide you with a high-level financial resource that can assist in preparing analyses of the financial information in a professional manner making the lender proposal process less arduous. These statements may be used as a resource to assist in conversations with those providing capital assistance to ensure a complete understanding of the business’s results of operations.

Free Download: Discover how outsourced accounting can provide more visibility into your business

If you think your company could benefit from outsourcing your accounting services, contact Signature Analytics for a free consultation.

 


 

Discover how outsourced accounting can provide more visibility into your business

Businesses still seeking relief from the impact of COVID-19 may be able to find it in the second round of PPP loan legislation passed by Congress in late December of 2020. The Consolidated Appropriations Act, 2021 seeks to overcome some flaws of the first round of the Paycheck Protection Program (PPP) while providing additional assistance to businesses still suffering in the wake of the COVID-19 pandemic.

Even those who were unable to get funding during the first round of PPP loans can apply for their first-draw under the new guidance. With relaxed rules on which expenses are eligible for forgiveness and specific funding set aside for lenders who operate in lower-income areas, businesses owned by POC, and small businesses, this round of PPP loans is better suited to serve the American population as a whole equally.

Since the program’s initial launch, our team of experts have had a chance to review the program in greater detail and want to provide our findings below. We know navigating through this legislation can be tricky, just know we are here to provide support and guidance to business leaders in need.

Quick Overview of Changes:

  • Dramatically expanded payroll and non-payroll expenses eligible for forgiveness
  • Additional clarity on loan terms
  • Updated limits on loan amounts
  • Clarity on forgiveness and tax savings opportunities
  • Flexibility on the covered period of the loan
  • Revenue reduction proof requirements
  • PPP Loans: The Changes for Round 2

Covered Expenses

To be eligible for PPP loan forgiveness, borrowers must use the funds on approved, covered expenses. Under the new legislation, the 40/60 split is still required: borrowers must use 60% of the funds on payroll expenses and can use up to 40% on approved, non-payroll expenses.

However, covered expenses in both categories have been expanded. Existing payroll costs included:

  • Salary, wages, commissions, tips
  • State and local payroll taxes
  • Paid leave
  • Healthcare payments
  • Retirement plan contributions

Expanded payroll costs now include:

  • Group life insurance
  • Group disability insurance
  • Group vision insurance
  • Group dental insurance

Existing covered non-payroll expenses included:

  • Interest on mortgage payments, excluding prepayments
  • Rent
  • Utilities
  • Interest on debt obligations incurred before the covered period

Additionally, the new legislation expanded forgivable non-payroll expenses to include:

  • Certain operational expenditures like software and cloud computing service payments used to facilitate business operations, accounting, service or product delivery, payroll processing, billing, inventory, and HR functions
  • Property damage costs incurred during public disturbances that happened in 2020 and were not covered by insurance
  • Select supplier costs including payments to suppliers of goods that are essential to operations
  • PPE equipment and other worker protection expenses incurred to comply with CDC, HHS, OSHA, or state and local government authority after March 1, 2020, until the president’s national emergency declaration expires

Note that expenses for HSAs, QSEHRA, and Commuter Benefits like mileage reimbursement are still not covered under the new PPP guidance.

PPP Loan Terms

The new legislation brings additional clarity to the terms of PPP loans. Here are some of the highlights:

  • Interest rates are fixed at 1%
  • Interest is non-compounding and non-adjustable
  • No yearly fees
  • No guaranteed fees
  • No prepayment penalty
  • Borrowers are not required to provide collateral or a personal guarantee

Providing this guidance ensures that lenders cannot take advantage of borrowers seeking PPP loans. Additionally, while the maturity for PPP loans is five years, payments aren’t required until borrowers know how much of the loan will be forgiven.

Borrowers who do not apply for PPP loan forgiveness, however, will have to make payments within 10 months of the last day of their covered period.

eGuide: What Business Should Expect From Their Accounting Department

Loan Funding Limitations

For first-draw borrowers, there is a limit of $10 million or 2.5 times the average monthly payroll and healthcare costs; whichever is less. Some exceptions may exist for restaurants and other hospitality businesses.

The loan limit for second-draw borrowers is $2 million and includes a stricter method of calculation, which is:

  • 2.5 times the average monthly payroll and healthcare costs in the year prior to when the loan was received or the 12-month period prior to when the loan was made
  • Most hospitality and entertainment businesses, including hotels and restaurants, are eligible for up to 3.5 times the average monthly payroll and healthcare costs using the same methodology as above

If borrowers with an outstanding, unforgiven PPP loan would have been eligible for more resources under the new, expanded covered costs, they may amend their loan application and request a higher amount. Loans that have already been forgiven are not eligible to be amended.

Forgiveness and Tax Deductibility

With the expanded eligible expenses, forgiveness is much easier to receive. Additionally, the SBA has simplified the forgiveness process so that borrowers with loans of $150,000 or less may utilize a one-page application.

Tax benefits also exist for PPP loans. The funds are not included in any gross income that a business is required to report. Better yet, expenses that are paid for using the funding from a PPP loan are tax-deductible. That creates a double tax benefit as no taxes are due on the amount received and business can deduct expenses paid using the funds.

The Covered Period

New legislation has provided additional flexibility as to when borrowers use their PPP loan funds. While the covered period for the first-draw remains unchanged, second-draw borrowers can choose a covered period anywhere between 8 to 24 weeks after receiving the loan. This provides much-needed freedom to utilize the funds as necessary and eliminates the restrictions faced during the first-draw covered period.

Updated Eligibility Requirements

First- and second-draw loan recipients each have specific eligibility requirements. Both types of applications require that a business was operational before February 15, 2020, and remains operational. The first difference occurs in the required number of full-time, part-time, or seasonal employees:

  • First-draw applicants: Must have less than 500 employees
  • Second-draw applicants: Must have less than 300 employees or less than 300 employees per business location

Additional Eligibility Requirements for Second-Draw PPP Loans

Proof of 25% Revenue Reduction
One of the more stringent expectations of second-draw borrowers is the required proof of revenue reduction. In order to qualify, borrowers must show a revenue reduction of at least 25% in the first, second, or third quarter of 2020 when compared to that same quarter in 2019. The following are all required to be included in the revenue calculation:

  • Fees
  • Dividends
  • Commissions
  • Sales of products or services
  • All revenue from every source in whatever form received or accrued by the borrower and any affiliates

The funding from first-draw PPP loans is, however, excluded from this revenue calculation.

Only loans totaling over $150,000 will require borrowers to submit documentation to prove revenue decline during the application process. However, all borrowers will need to submit this information when applying for forgiveness. Here are some forms that will help provide the proper documentation:

  • Relevant tax forms
  • Quarterly financial statements
  • Bank statements

Fully Used First-Draw PPP Loan
In order to be eligible for a second-draw PPP loan, borrowers must have already used or will use their entire first-draw PPP loan.

Eligible Businesses

The following are eligible businesses for both first- and second-draw PPP loans:

  • Sole proprietors
  • Independent contractors
  • Self-employed individuals
  • Certain 501(c)(6) non-profit organizations
  • Seasonal employers
  • Faith-based organizations that have less than 150 employees
  • Housing cooperatives that employ less than 300 people

For further information on which businesses are eligible, visit the SBA website.

Ready to Apply?

Applications are ready for borrowers now and will remain live until March 31, 2021. Funds are first come, first serve so it’s best to apply as soon as possible. Finding lenders is easier than ever using the SBA’s Lender Match website.

Before applying, it’s best to gather these documents for both 2019 and 2020:

  • Tax returns, if available
  • Financial statements, including profit & loss
  • Bank statements
  • Payroll records and reports

Borrowers can also review the first-draw application and second-draw application when preparing to apply. When in doubt, hiring a professional accountant can help borrowers get the maximum amount from their PPP loans.

Make your strategic budget a priority

Whenever a high-ranking executive from a prominent organization gets involved in a case of embezzlement or employee fraud, it makes headlines around the world.

These are a few more well-known examples of fraud:

  • Dane Cook, an American comedian, whose brother who was his business manager and took advantage of him for about $12 million
  • Girl Scout parents who were caught stealing money from their daughter’s cookie sales (average estimates of $10,000)
  • Bernie Madoff, an American market maker, investor, and financial advisor, who committed the highest financial fraud in US history worth almost $65 billion

These examples might seem unlikely to happen to your company, and as a small business owner, you may believe your organization is immune to theft and fraud.

After all, who else knows and understands their employees best if not for you? In your heart of hearts, you likely believe they would never do something like embezzling money. If anything, you have a rigorous hiring manager who conducts thorough background checks, so, therefore, no potentially malicious individual could be brought on to your team.

Unfortunately, your thinking would be flawed.

Read More: 5 Ways to Improve Internal Accounting Controls and Oversight in Your Business

What Advice Do Fraud Experts Give?

Any employee, when presented with the right set of circumstances, is capable of committing fraud.

According to the Association of Certified Fraud Examiners’ (ACFE) 2018 Report to the Nations, asset misappropriation was by far the most common form of occupational fraud, occurring in more than 89% of cases and leading to losses upwards of $110,000.

Small businesses can be especially devastated by fraud, as these companies often have fewer resources to prevent and recover from malicious acts.

Organizations with less than 100 people often must trust their employees with more information compared to businesses with many more workers with the ability to have anti-fraud controls in place.

While employee fraud prevention may not be top of mind for you, consider that the median loss for small organizations was almost twice as high as those incurred by organizations with more than 100 employees.

The ACFE reports two key reasons why small businesses have an increased risk of employee fraud:

  1. a lack of basic accounting controls
  2. a higher degree of misplaced or assumed trust

In a small to medium-sized business, the employee handling the bookkeeping is most likely to be the one to commit a crime as they can see all of the numbers, and they have your trust. However, in small businesses, there is a 29% chance that the owner or executive is the one who will commit fraud.

Read More: How To Spot Employee Fraud

How Basic Accounting Controls Can Make A Difference

Often, company leaders believe that spending an excessive amount of money on implementing complex systems of controls will save their company from employee fraud. This is not the case.

Complex controls can surely make a positive impact, but most often, starting with the basics can set you ahead of the curve.

In the ACFE 2018 report, it was noted that internal control weaknesses were responsible for nearly half of all frauds committed. Businesses that had implemented anti-fraud controls had lower losses overall, which means that these controls are working to keep the company safe.

The report also found that when businesses routinely monitor and audit their back-office functions, fraud is reduced. Even with the information found on how these controls can make a difference, only 37 percent of businesses polled had these internal controls in place.

If you would like help implementing internal controls, even at the most basic level, you can reach our team of experts at any time. Our experienced team can make recommendations based on the industry you are in, the size of your company, and the budget you have in place. Protecting your business from fraud is imperative.

What Can You Do To Protect Your Business From Employee Fraud?

Don’t wait for a fraud to occur. It is essential to be proactive and preventative and put processes in place.

Studies show that the more employees believe they will get caught, the less likely they are to commit fraud. Below we have outlined some practical tips for small business owners to reduce the risk of loss due to employee fraud:

  1. Don’t depend solely on external audits: External audits are usually performed once per year and months after the year ends. Even if the audit uncovers fraudulent activity, it may have been occurring for 12 months or longer before being discovered.
  2. Segregate accounting duties: Avoid allowing the accounting function to be controlled by a single individual and segregate accounting duties in key areas instead. Such duties and responsibilities may include:
    -Recording and processing transactions
    -Sending out invoices
    -Collecting cash
    -Making deposits
  3. Routinely review financial information: If you have a small team and complete segregation is not possible, the business owner or an outside accounting firm should review the bank statements (preferably online or before the accountant has opened them) and bank reconciliations every month. Vendor payments should also be periodically reviewed. A common scheme is to set up fictitious vendors and manipulate bank statements with photo editing software before printing and filing them for review.
  4. Ensure accounting oversight: Hire an outsourced accounting firm to provide oversight, support, and possibly management of the in-house staff. They will start by reviewing your current accounting controls, workflows, and processes to make recommendations for improvements, implementing best practices, or even take on some of the accounting activities.
  5. Get fraud insurance: Purchase a bond or fraud insurance to protect your business if a theft does occur and/or have trusted employees who handle the finances bonded.
  6. Require your bookkeeper to take a vacation: Embezzlement and other types of fraud require a constant paper trail to go undetected. Therefore, business owners should insist that employees who perform the company’s accounting/bookkeeping duties take a vacation every year and designate a backup person to cover their responsibilities during that leave. Ideally, the vacation should be at least a week-long and occur over a month-end when the books are being closed. Assuming your books are closed monthly, this is not an easy request with a small team and another reason to build a trusted relationship with an outside firm.

According to the ACFE’s 2019 Benchmarking Report, 58% of organizations have inadequate levels of anti-fraud staffing and resources. For your company, this may mean conducting background checks will not be enough to protect your company from in-house fraud.

How Can I Protect My Company?

By partnering with the Signature Analytics team, we can recommend industry-specific suggestions for your company. We help our clients put preventative controls in place and provide an appropriate level of oversight of their financial books and records to ensure accuracy.

Signature Analytics provides small and mid-sized businesses with the resources of a full finance and accounting team. We utilize a fractional accounting model so clients can effectively segregate accounting duties without having to hire additional full-time accounting staff.

To learn more about how we can help ensure your business has fraud prevention, contact us for a free consultation.

This article was originally written on April 8 and portions have been updated on July 7, 2020. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.

On March 27, 2020, S.3548 the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law to give emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.

As the most massive stimulus bill in American history ($2.2 trillion), it includes several relief areas for individuals and businesses including:

  • Direct payments to tax-paying Americans
  • Enhanced unemployment aid
  • Small business loans and grants
  • Loans for the airline industry and other big businesses
  • Money for individual states, hospitals, and education systems
  • Tax cuts
  • An increase in safety net spending
  • A temporary ban on foreclosures

Read the entire bill in all of its detail here.

There are some aspects of this bill that will directly affect our customers and their businesses, which we have broken down in detail below.

Direct Payments To Tax Paying Americans

Part of the $2.2 trillion of aid this bill brings includes an estimated $290 billion set aside for payments to the American people. Citizens who pay taxes are reported to receive a direct payment from the U.S. government. The amounts of those direct payments vary based on household size and income level. These figures are represented below:

  • Single individuals are expected to receive a one-time payment of $1,200
  • Married couples are expected to receive a one-time payment of $2,400
  • Families with children under the age of 17 are expected to receive an extra $500 per child.

There are some stipulations for these monetary amounts. Those are for Americans earning more than $75,000 per year, the number of direct payments may be lower. Individuals earning more than $99,000 per year are not eligible for these payments. Another important note is one that affects child support payments. If an individual is behind on child support payments, they will not be eligible for this direct payment.

Small Business Payroll Protection Program

The CARES Act should also help many small companies and 501(c)(3) nonprofits who have suffered from little-to-no business during the COVID-19 pandemic.

Through the Payroll Protection Program (PPP), businesses with less than 500 employees have the ability to secure loans up to 2.5 times the average months of its payroll costs or up to $10,000,000.

If a small business, with employees located in the United States, were to secure this loan, they could use it to help cover some of the following needs:

  • Salaries
  • Rent
  • Healthcare benefits
  • Debt obligations
  • Mortgage interest
  • Utility costs

It should be noted that securing a loan under the PPP can only cover expenses from February 15 to June 30. There is an estimated allocation of $350 billion set aside for loans and emergency grants.

If you think your small business or nonprofit organization could capitalize on this opportunity, call your Small Business Administration lender to begin the process as soon as possible. If you are not sure who your SBA lender is, start by contacting your local banks within your area or try the SBA Eligible Lender locator found here.

Read More: Planning and Managing Your Banking Relationship During COVID-19

It might take some time to organize essential information like tax records and other important documents. The sooner all of these items are organized, the sooner the loan will come through. Be aware the first day to apply for these loans is April 3, 2020. 

To help you get started, here are some great resources from the U.S. Treasury office:

For more information and details on the PPP (there are a lot of them), but the above resources can help you get started right away. Continue checking our internal resource center under the “Employer Resources” tab. Additionally, there are many on-demand webinars that can provide additional insight.

As always, do not hesitate to reach out to us for assistance.

Read More: COVID-19 Resource Center

Paycheck Protection Program Flexibility Act of 2020: Amendments to the PPP

On June 5, 2020, President Trump signed into law the PPP Flexibility Act, with amendments to the previous PPP.

Below we have outlined the main takeaways to help you understand the most significant changes.

  • The new legislation alters the existing PPP, giving borrowers more time to spend loan funds with the ability to obtain forgiveness.
  • Loan borrowers now have 24 weeks to spend their loans.
  • There is a reduction in mandatory payroll spending from a previous 75% down to 60%.
  • Businesses can now delay paying payroll taxes even if they took a PPP loan.
  • Borrows can now receive full loan forgiveness if they have yet to restore their workforce fully.
  • The loan repayment schedule extends from two years to five years.

New updates 07.07.20:

The original (but newly released) PPP Loan Forgiveness Form was a little too complicated for smaller business owners that may not have immediate access to an accountant or lawyer, therefore, the SBA released the Paycheck Protection Program Loan Forgiveness Application Form 3508EZ. The 3508EZ Form can also be ideal for:

  • the self-employed or businesses that have no employees OR
  • businesses that did no reduce the salaries or wages of their employee by more than 25%; and did not reduce the number of hours of their employees OR
  • businesses that experienced reductions in business activity as a result of health directives related to COVID-19 and did no reduce the salaries or wages of their employees by more than 25%.

Also, the payroll calculation used in the loan application still applies to the forgivable amount, meaning the employee compensation eligible for forgiveness is capped at $100,000.  However, they are increasing the max forgiveness per employee (non-owners):

  • Originally $15,384.61 for the eight-week period ($100,000 pro-rated)
  • It is now $46,153.85 for the 25-week period.

For Owners, Sole Proprietors, Independent Contractors, or General Partners: 

  • For the 8-week period, forgiveness for owner compensation is calculated as 8 / 25 X 2019 compensation, up to a maximum of $15,385 in total for all businesses.
  • For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 / 12) of 2019 compensation, up to $20,833, also in total for all businesses.

The final day to apply for the PPP loan has been extended to August 8, 2020, allowing eligible small businesses more time to apply for the remaining $130 million of PPP lending capacity. 

PPP recipients can apply early for forgiveness? We’ve had many clients ask us whether they can apply for PPP loan forgiveness before their covered period expires. By doing so, they forfeit a safe-harbor provision allowing them to restore salaries or wages by Dec. 31st and avoid reductions in the loan forgiveness they receive. So for now as things are evolving, we say hold off on doing this. Most banks will start accepting loan forgiveness applications in mid-August.

There is still much to learn about relaxing guidelines, we will do our best to keep this updated.

More Time to Spend Loan

One of the most significant changes with the PPP Flexibility Act is now borrowers have more time to spend the amount of their loan. Previously, only eight weeks were allotted to spend this money, which put a considerable amount of pressure on the borrower to ensure the funds were spent on forgivable expenditures. The time frame has been increased to 24 weeks after the origination of the loan or to December 31, 2020, whichever is earlier.

Payroll Spending

A reduction has been made to the mandatory payroll spending. This means the amount of money from the loan that was required to go toward payroll costs has been reduced from 75% to 60%.

What this change allows is for forgivable non-payroll expenses to be as high as 40%, enabling small business owners to put that money toward other costs they were struggling to pay. For example, for businesses that covered their payroll costs but still didn’t have enough to pay bills like rent, this helps free up some of the money for this purpose.

Repayment Period

The repayment period has been extended. Previously, the repayment period was for two years, and now the extension goes to five years while retaining a 1% interest rate. Ultimately, this allows borrowers extra time to pay off the unforgiven portion of their loan.

If a borrower received their loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity.

Would you like to read the new law? You can access it through congress.gov here.

Tax Cuts For Businesses

One of the other significant aspects of the CARES Act is the tax cuts for businesses. There have been modifications made to the Tax Cuts and Jobs Act (TCJA) of 2017. These modifications directly affect the net operating loss rule, lifting the 80% rule, and ensuring losses are carried back five years.

There is other positive news for businesses and their payroll. A refundable 50 percent payroll tax credit for businesses directly affected by the novel Coronavirus is available to help employee retention.

A few other areas of significance include:

  • Any distilleries who are helping to create hand sanitizer in their facilities will have federal tax waived
  • Businesses are able to write off donations of goodwill and student loan payments for their employees
  • Suspension of penalties for those who must tap into their retirement funds

Every business finds itself in a unique situation during this time; therefore, if you are not already partnered with us, we recommend that you work with a tax CPA or Small Business Administration lender on how to navigate this bill and how it impacts your company.

Signature Analytics is here to support you and can provide references to our partner network upon request. Feel free to contact us to get started.

New Updates For Consideration

It is important to understand the CARES Act is on a “first-come, first-serve” basis, so if your organization needs funding, we urge you to get your paperwork submitted as quickly as possible.

  • Based on how many employees you have, the limit used when calculating payroll costs is $100,000 and includes insurance, benefits, and taxes.
  • Eligibility for PPP for self-employed or independent contractors is based on self-employment net income, but cannot be counted for payroll costs.
  • Any federally illegal businesses will not receive funding and cannot participate in this program.

ppp flexibility program update 06.08.20

*updated 06.08.20

Nearly $500 Billion More In Aid

As of the evening of April 21, the Senate has approved $484 billion in aid for the stimulus package. On April 23, the bill will go to the House to pass as a complete package and make this funding available.

This additional funding is to support the small businesses, hospitals, and many other businesses negatively impacted by the coronavirus. However, $310 billion of this aid is considered being allocated for the Paycheck Protection Program, $60 billion of which will likely be set aside for smaller lending facilities and credit unions.

Under the emergency Economic Injury Disaster Loan program, there should be roughly $410 billion in grants, $50 billion for disaster recovery loans, and 42.1 billion for salaries and other expenses for the SBA.

Hospitals and health care providers are looking at a likely $75 billion and an additional $25 billion for COVID-19 testing.

All of these amounts are part of what the House will take into consideration later this week.

Resources:

https://www.forbes.com/sites/leonlabrecque/2020/03/29/the-cares-act-has-passed-here-are-the-highlights/#c2e55d268cd2
https://www.reuters.com/article/us-health-coronavirus-usa-bill-contents-idUSKBN21D2CQ
https://www.cpapracticeadvisor.com/tax-compliance/news/21131709/summary-of-the-coronavirus-aid-relief-and-economic-security-cares-act
https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/
https://www.congress.gov/bill/116th-congress/senate-bill/3548/text
https://www.cohnreznick.com/insights/sba-amends-requirements-for-its-paycheck-protection-program

This article was originally written on May 1 and portions have been updated on July 7, 2020, in accordance with the PPP Flexibility Act signed into law on June 5 by President Trump. Additionally, the PPP application extension period being moved to August 8, 2020, for small businesses to apply for the remaining $130 billion of PPP lending capacity. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.

Many business owners are feeling the pressure the coronavirus has put on the market and their companies. Many have their workforce operating remotely, some with only a skeleton staff, and others having to layoff their workers due to the impact of COVID-19.

In response to the economic hit many business owners are currently facing, the U.S. government responded with the CARES Act, a bill designed to bring health care assistance and financial aid to those individuals, families, and businesses hit hardest by the pandemic.

Read More: A Summary: Coronavirus Aid, Relief, and Economic Security (CARES) Act

One of the significant benefits of the CARES Act for business owners to take advantage of to protect their workforce is the Payment Protection Program (or PPP). With the chaotic rollout of the Payment Protection Program (PPP), many business owners have already scrambled to file the necessary paperwork with their banks, credit unions, and other financial institutions to secure funding. All of which are all backed by the Small Business Administration (SBA). This aid will be critical in helping owners pay their employee’s salaries, benefits, company bills, and make other vital financial payments to keep afloat.

Despite the initial rush to submit the necessary paperwork, there is a waiting period that takes place once all the required documents are filed to when the aid finally comes through. Some owners have already received their funding, while others are still in that waiting period fueling more feelings of uncertainty.

Millions of companies are applying for this aid and loan forgiveness all once. As a result, funding approval is taking much longer than initially anticipated. Not only is the sheer volume of applicants incredibly high, but the process for going through each application is quite lengthy. We recommend being prepared for a waiting period of 90 days or longer.

No matter which scenario an establishment is facing, this growing uncertainty is leaving many business owners wondering what additional steps they should be preparing to take next to solidify the future of their companies while maximizing the benefits of the PPP program.

While millions of eligible companies are applying for forgiveness on their loans during this time, in the meantime, they must utilize these funds the correct way so these companies can maximize forgiveness.

If at any point during this process you have questions or would like to speak to an expert, please don’t hesitate to reach out. Our CFO task force, a highly skilled team comprised of accounting and finance experts, is working diligently to help small to medium-sized businesses navigate their way successfully through this process.

The Signature Analytics promise is to manage your accounting and financial reporting, so you don’t have to. However, during this confusing and stressful time, we are going beyond the numbers to help improve your business performance and help drive strategy and direction.

Critical Next Steps

The experts at Signature Analytics are recommending the following next steps to help comply with the PPP and obtain the most significant company benefits:

1. Have a plan. The 24-week clock will start ticking as soon as those funds are received. What you do with the money during these weeks determines your loan forgiveness, so it’s best to come prepared with a spend-down plan for the PPP funds. Signature Analytics has developed a template to help you plan and track funds used.

Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

2. Documentation. Your lender will require documentation to apply for loan forgiveness, so it will be imperative that you carefully track using the funds for qualified expenses. The better documentation and support, the easier the process will be for forgiveness. There are several methods you can use to track your funds. Some recommended ideas include:

  • Creating a separate class in your Quickbooks file
  • Creating a separate balance sheet to track the use of the PPP loan
  • Opening a dedicated bank account used solely for eligible expenses
  • Review and update cashflow scenarios to ensure they are still valid

The Signature Analytics team can discuss which options will be best for your situation to maintain records to substantiate expenses.

3. Monitor. During the 24 weeks, the actual use of the funds must be carefully monitored. In order to qualify for loan forgiveness, at least 60% of the loan must be used for payroll costs. Keeping in mind that various restrictions need to be considered here for highly compensated employees. It is important to stay diligent on the rules for forgiveness and the tracking of the proceeds of the loan.

4. Be cautious. Loan forgiveness can be reduced if either of the following occurs:

a. Employees who make less than $100,000 (annualize) have their comp reduced by 25% or more may cause a dollar for dollar reduction in your forgiveness amount.

– OR –

b. If the number of full-time employees is equal to or less than the same number from February 14, 2019 to June 30, 2019, or January 1, 2020 to February 29, 2020, among other criteria. The Treasury website has the most current information regarding these criteria.

5. Avoid other CARES Programs. Some programs may nullify participating in the PPP, including the Employee Retention Credit and Deferral of Payroll Taxes. It is essential to get guidance from your tax and HR professional in regards to all areas of the CARES ACT.

6. Consider timing. You will want to maximize the payment of qualifying expenses during the eight-week loan forgiveness window. For strategies on how best to pay your bills, please reach out to the Signature Analytics team for guidance.

7. Don’t misuse the funds. While specific guidelines for misappropriation of funds are not currently available, we do know that business owners using the funds for fraudulent purposes will be subject to criminal charges. Additionally, businesses that misrepresent or do not accurately portray their information submitted may be subject to criminal penalties.

8. Even if it’s not forgiven. You are still left with a reasonably good loan. If you received the loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity. Both options come with a 1% interest with no prepayment penalty. Keep in mind that even though interest and principal payments are deferred for six months, the interest will still need to be accrued during the deferral period for any portion of the loan not forgiven.

9. Contact your lender. Communicating with your lender during this time is a critical step, to ensure both parties understand all of the forgiveness guidelines. Ideally, you will complete the loan forgiveness application found here and submit it to your lender before the October 31, 2020 deadline.

10. Consider the MSLP. The Main Street Lending Program is another new program available for small and medium-sized businesses that were financially stable before COVID-19 took effect. A few of the eligibility requirements include being a U.S. based business with an establishment date before March 13, 2020. You can read more about the criteria through the link below.

Read More: Your Guide To The Main Street Lending Program

Final Thoughts

It is valuable to note that since the PPP was initially launched, guidance from the Treasury Department has continued to evolve, including signing the PPP Flexibility Act on June 5. This is a very fast-paced pandemic and is requiring government agencies and those who support it to think on their feet and provide businesses with relief fast.

For this reason, the information outlined above may change in response to additional guidance. We will do our best to keep you up to date, and you can always contact us at any time for support.

Related Resources:

Most up-to-date resources as of 05-27-2020:

This article was originally published on 6.11.20  and contains the new program guidelines that were released on 6.8.20. We will continue updating as new information becomes available.

During the last few months, the Coronavirus has created an incredible impact on the world. As a result of this unforeseen occurrence, many individuals and businesses were negatively affected and continue to struggle today.

The Federal Reserve announced in April that a new lending program was in the process of being established for small and medium-sized businesses that were financially stable pre-pandemic. The creation was a result that stemmed from the CARES Act as an avenue to make $600 billion accessible in aid. It complements the aid available through the Small Business Association and other funding options.

Below, we breakdown the essential facts of the program, as well as answer some commonly asked questions our team of experts is receiving. This breakdown includes the newly released guidelines from the Federal Reserve that were announced on 6.8.20.

“Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” Powell said in Monday’s announcement. “I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period,” Fed Chairman Jerome Powell recently said of the revamped program.

We hope this will serve as a starting point to understanding the plan, but in no way should one financial leader opt to manage all of this information for their business on their own. You can call our expert financial team at any time so we can help you throughout this process. Continue reading for all of the insights.

What Is The Main Street Lending Program?

As mentioned above, the Main Street Lending program is the government’s additional solution to providing funding for small and mid-sized businesses.

The program operates through three facilities:

For information regarding each of these facilities and answers to questions on the terms and conditions, please visit the Federal Reserve resource here.

Other key takeaways from the Main Street Loan Program update: 

The federal research expanded its Main Street Loan Program with a few major changes to allow more small and medium-sized businesses to be able to receive support. The changes include:

  • Lowering the minimum loan size for certain loans to $250,000 from $500,000.
  • Increasing the maximin loan size for all facilities (Maximums for each type will be $35 million, $50 million, and $300 million). Loan caps are based on outstanding credit and adjusted EBITDA of the borrower.
  • Increasing the term of the loan option to 5 years, from 4 years.
  • Extending the repayment period for all loans by delaying principal payment for 2 years, rather than 1 year.
  • Raising the Reserve Bank’s participation to 95% for all loans.

The Fed says the facility will open registration to potential lenders “soon.” More details can be found on the Federal Reserve website.

main street loan program updated details

How Do I Know If I Am Eligible?

To participate in the Main Street Lending Program, a borrower must meet the list of criteria below. Most importantly, the business that is attempting to securing the loan must have an establishment date before March 13, 2020, and be based within the United States.

Secondly, eligibility requirements also include having either:

  1. less than $5 billion in 2019 revenues or
  2. less than 15,000 employees.

Non-profit applications should note that a separate program is in the works for their unique circumstances.

A few more eligibility details of importance include:

  • being a partnership, limited liability company, corporation, association, trust, cooperative, a joint venture (with no more than 49 percent participation by foreign entities); or a tribal business concern
  • not being an “Ineligible Business” under the Small Business Administration (SBA) definition, as applied to the Paycheck Protection Program (PPP)
  • not participating in the Primary Market Corporate Credit Facility or receive specific support provided by the CARES Act made available to air carriers and businesses critical to national security

If your business has applied for or already received Paycheck Protection Program (PPP) funds, the Federal Reserve has made it clear these do not make a business ineligible for a loan from the Main Street Lending Program.

How Do I Apply For The Program?

Business leaders can visit or call any U.S. bank to apply for a Main Street Lending program loan. It may be easiest to select where you already have established your banking relationship; however, there are no restrictions.

The bank you choose to work with will first assess the risks and then will offer you an interest rate. Our recommendation is to apply with two separate banks and make your selection based on the most competitive interest rate you are offered. Since bank lenders are now only required to take on 5% of the loan, more competitive rates will become available.

It is important to note that there will be fees associated with your loan, so understanding this upfront can help you make your final decision.

Is There A Limit or Minimum To How Much Aid I Can Borrow?

Yes, there are restraints on how much a business can borrow. Loans offered through the Main Street Lending Program range from $250,000 to $300 million.

Depending on the type of loan, each will have a 5% to 15% risk retention rate. What this means is that for banks, they are guaranteed in this amount by the federal government.

What Else Should I Know About The Program?

We cannot stress this enough, but once you receive your funding and in your account, there is no separation between those funds and your other finances. With that, it is critical to use a tracking method, so you have documentation of where the funds are allocated.

Two Tips From Our Expert CFO’s

Here are two questions to ask yourself or your company’s financial leaders:

  1. Have you developed a 13-week cash flow plan? Even better if you can create a plan through the end of the year. Having this type of cash flow forecast will allow you to plan for all revenue and expenses while still providing visibility to make strategic decisions.
    Read More: Actionable Advice from Our Founder to Improve Your Cash Flow
  2. Have you gone through the appropriate steps for scenario planning? You likely need assistance projecting your cash needs, figuring out potential profitability, and determining how best to make data-driven decisions. Using the scenario planning model, you can forecast your business results over an extended period.
    Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

If the answer to either of these questions is no, now is the time to get started. We are asking our clients to develop and execute these plans to help them plan for their future as much as possible.

Our CFO team is already supporting these initiatives and are happy to help you dive deeper into the best decisions for your company using limited resources.

Do Not Navigate This Alone

There are many programs designed to help businesses impacted by COVID-19, and this is only one of them. As a business leader, you are a decision-maker in your company, and you must be armed with accurate information to lead your company to success.

You can call us with any questions you have or advice you are looking for while navigating the Main Street Lending program or other programs out there. We also work with a number of banks that are part of the lending program. It is our promise to go beyond the numbers to help improve your business performance and achieve your goals. Our team of experts is ready to help you lead your business into the new normal with funding in your bank account.

Important Resources:

 

“It’s not what you pay a man, but what he costs you that counts.” —Will Rogers

Good business leaders understand that having insight and control over the company costs is vital. Low overhead and a surplus of cash is a recipe for a financially successful business, but when an unforeseen global pandemic steals customers away from your business model, what is your response?

If you are like J.Crew, Neiman Marcus, or Souplantation, the solution is to cut employees loose, shut your doors, and hope that the financial aid from the federal government is enough to pay your essentials bills until the mess dies down.

However, if you are a smarter leader with an insightful team by your side, you can reduce your cost structure and keep your business alive during the midst of it all.

We want to take some time to be that insightful team for you. Below, we highlight the key ways you can proactively reduce and control overhead rather than making severe deep cuts.

During the uncertainty of this current economic environment, there is no better time to address leaning your company. Taking an intellectual dive into the inner workings of your company using the following ideas is one way to evaluate what is working and what is not.

Idea 1: Speak With Lenders

Fostering a better relationship with each of your lenders is one of the first steps we recommend taking during this time. A simple phone call to your banks, credit unions, and other money lenders will help to keep lines of communication open.

Not only that, but it will help you establish a relationship of trust if you initiation the call. When you have the lender on the phone, also be sure to ask about some of the following:

  • A detailed review of the terms for all your business loan agreements and lines of credit
  • The option of refinancing debt to extend terms and reduce payments
  • Ask about reducing interest rates on loans and credit cards
  • Try requesting a credit line increase for credit cards
  • Consider negotiating a way to pay only interest on the debt if finances become too tight

You don’t know what the lenders will say until you ask, so try and negotiate the best terms for your business and see what options are presented to you.

Idea 2: Seek Financial Aid

The federal government has been rolling out a variety of financial aid packages for businesses to choose from during the COVID-19 pandemic.

The three large government options available include PPP, EIDL, and Main Street Lending program.

The Paycheck Protection Program stems from the CARES Act as a way for business owners to help pay employee salaries, benefits, company bills, and make other vital financial payments to keep afloat.

Read More: What Should Your Next Steps Be When Applying for the PPP?

The Economic Injury Disaster Loan Program is part of the Small Business Administration’s federal assistance for the private sector. It can provide up to $2 million to small or private businesses and non-profit organizations regardless of whether the applicant sustained physical damage from the pandemic.

The Main Street Lending Program is the newest program announced by the federal reserve and was specifically established for small and mid-sized businesses that were financially stable before the coronavirus pandemic. Roughly $600 billion of aid is accessible for these companies.

Read More: Your Guide To The Main Street Lending Program

Another option is to seek private grants from big organizations. Please do some research on grants.gov or reach out to our team for a few suggestions.

Idea 3: Review Your Contracts

This might be one of the easier ideas on our list! With that, you should make efforts to understand how your business is using the space you are in and how it might need to expand or trim in the future.

If your lease is nearing its end, consider this as an ideal time to renegotiate on the original terms. Some options include subleasing the space, taking over a new and less expensive commercial real estate location, or taking advantage of a shorter-term lease from your landlord.

Idea 4: Boost Incentives

Now more than ever, your customers have a reason to zip up their wallets and pour over their credit card billing statements. The best thing you can do to ensure your services are billed continuously is to show their value. If your customers understand why they need your products or services, then you are appealing to the financial side of their rationale.

Once you feel you have established a customer relationship based on trust and necessity, consider rewarding or incentivizing them by discounting early payments, offering special pricing on new product launches, or giving coupons to loyal customers.

You can expect that each of your customers is struggling in their own way, and so your overall goal is to ensure they feel valued and that you are continually providing real value. Take this time to look beyond the numbers and understand your customer’s business strategy and how you can further support them in reaching their goals. Need more help in this area? Call our team of experts for even more advice.

Idea 5: Look Beyond The Obvious

Unfortunately, one of the first places scared leaders will choose to cut back is by way of their employees. We don’t believe this action is the ideal way to reduce your cost structure.

Layoffs are harmful to the remaining employee’s morale and productivity. They are working in fear rather than working to continue the mission of the company.

While there are times when addressing your labor force is a crucial factor for your business’ survival, it is crucial to look beyond that channel at the beginning. Before heading down the path of layoffs, consider these other roads first:

-a reduction to working hours
-furloughs
-decrease or eliminate bonuses and performance pay

Consider modifying the benefits and compensation plans as a way to minimize costs. Ultimately, many of these considerations will positively or negatively impact your business. Think through your plan and communicate your strategy with your other business leaders before taking action.

Final Thoughts

With the right information, leadership, and choices, reducing your business’s cost structure doesn’t have to be incredibly painful. The best outcome is when you can lean out, keep your incredible team, and envision a successful future.

Remember, communication is essential during this time. Answer all the questions, quell all the fears, boost everyone’s morale, and be as proactive and transparent as possible.

If you are looking for more ideas on how to trim down the excess costs of your company and how to recession-proof your business, you can read one of our most successful blogs linked below.

Read More: How to Proactively Recession-Proof Your Business During COVID-19

Call us for help taking these ideas and putting them into action. Our team of experts has helped countless businesses trim down their costs and can answer any questions you have about this process.

 

As a business owner, if you are asking yourself, “when is the best time to prepare my business for a negative economic impact?” the answer is now.

The coronavirus pandemic has made an incredible impact across our world over the last few months and has caused many U.S. business leaders to wonder this very question. Once the second quarter of economic decline is reported, our country will technically be inside of a recession.

The good news is that you can take steps now as a business leader that will make a positive impact on where to lead your company and weather the storm ahead.

If you sell products like hand sanitizer, toilet paper, and various other home goods, you may be experiencing a record quarter in sales. If your company books travel experiences, however, you might be concerned about paying your bills. No matter which camp you find yourself in, know that almost every company can find a way to be successful and maybe even thrive inside a recession—it just might take some creativity and critical thinking.

Where Do I Start?

When considering what your next steps should be, start asking questions. Consider how your business could benefit from the current market based on the services or products you sell.

The best place to start this process is to review the expert tips below so that you can confidently make decisions that will affect your company.

Mind Over Matter

This saying might be a bit cliche, but having the right mindset when it comes to challenging and difficult times is an essential starting place. It allows you to see the good in situations, find the best in people, and put trust in the decisions you make.

The power of positive thinking isn’t entirely new; Norman Vincent Peale wrote a book about it in the 1950s, and it’s a message that is frequently circulated today. The idea is that by thinking positively, you can achieve a permanent and optimistic attitude.

With this positive attitude, you can be forward-thinking and envision how you want to come out on the other side of the recession. The mindset that you cultivate for yourself today will very likely be adopted by your employees who will take actions to define your company’s future.

Leading your staff with a positive focus on the future can help you make decisions to keep your business alive and maybe even turn a profit.

If you think that your staff is struggling with the work and personal life adjustment COVID-19 is requiring of us, consider establishing an internal mentorship team. Ask for a volunteer to head up this kind of team and try out check-in conversations, productivity task lists, and a lightened workload for those who are struggling. You can read more ideas here.

Liquidity

After you have mentally armed yourself for the road ahead, the first place to look inside of your business is at your finances.

Without cash, it will be impossible to run your business. During a crisis, access to cash will be the most critical aspect of not only surviving but thriving through the recession.

Read More: Part 1: Why Cash Flow Is More Important Than Ever Before

After reviewing your savings and cash flow, you will need to determine if you have enough savings on hand for the next several months. If not, do not shy away from liquidating some of your assets. You can speak with an expert from the Signature Analytics team if you need advice here, but the key will be ensuring you have enough accessible funds to make payments on the unexpected.

There are plenty of other tangible ways to free up cash, such as:

  • building up cash reserves
  • refinancing loans or lease terms
  • looking into private equity or outside investment

If you’d like to dive deeper into this area, be sure to read our blog which covers a variety of liquidity options for your business and do your research to ensure you understand the terms before signing any contracts.

Read More: 10 Liquidity Options for Businesses During COVID-19 Outbreak

Break Into New Markets

It may be that your financials and cash flow are already in a great position. If that is the case, our experts recommend looking to other markets to break into as a next tangible step.

Host a Zoom meeting with your team to discuss any product or service expansion areas. If you already have a concrete understanding of your current market, why not expand your visionary thinking? Once you have a list of ideas, go through the following questions to gain a better understanding of the right opportunities for your business:

  • Where does it make sense for your business to head to next?
  • Is there a need for those products and services in a recession?
  • Will it be something customers will want to spend their money on?
  • Who are the direct and indirect competitors?
  • What advantages do you have over them?
  • Could you potentially acquire a company already doing this idea?

These are just a handful of questions to use as a starting place. We encourage you to conduct as much market research as possible during this exploratory phase to see what makes the most sense for the future of your business.

If you have mentors, you can reach out to those who have weathered an economic storm before, ask them for advice based on their knowledge of your business.

Who Is On Your Team?

If you don’t have anyone to reach out to bounce ideas off of or ask questions to, the team of experts at Signature Analytics is here. Every day we are helping our clients make critical business decisions like these.

While you may have an internal team working diligently to review your finances and accounting, we can work alongside them and aid in supporting your business to flush out any inconsistencies and help drive strategy beyond the numbers. .

This is also an excellent opportunity to look to leadership within your company and ask them to weigh in on the direction you are considering. They will have much insight into if the decision not only makes sense for the future of the company, but if prospective clients will utilize and pay for this service or product.

Read More: When Should You Consider Outsourcing Your Accounting Operations?

Final Thoughts

Remember, the goal isn’t just to get through this time, but to come out the other side with something to show for it. We are looking forward to hearing about how your company not only survived the coming recession, the lessons you learned along the way, and how you hopefully thrived through it.

Read More: How to Recession-Proof Your Business: 7 Tips to Thrive in an Economic Downturn

At Signature Analytics, our company promise is to go beyond the numbers to improve business strategy and help you reach your goals. We encourage you to reach out to us with any questions you have as you navigate this challenging process.

As any good business leader knows, planning for the future is a necessary step to help ensure the company heads in the right direction and reaches success along the way. Now more than ever before, this practice is a necessary step to even ensure its survival. Part of forward-thinking is reasoning through different paths your company could take and visualizing what outcomes would come from those directions.

Being able to draw up a mental picture of this future can enable a leader to make the right choices without spending unnecessary time or money going in the wrong direction. To plan effectively, the best place to start is by creating a plan, a type of financial model, to make predictions on your business’s results over a specific period.

This strategic thinking is what the industry refers to as scenario planning, as Forbes defines “alternate futures in which today’s decisions may play out.” By planning through your scenarios and stress-testing them, you should ultimately end with a clear direction that is best for your business to take. Below, we will walk you through how to scenario plan and then how to effectively stress test your scenarios.

eGuide: What Business Should Expect From Their Accounting Department

How To Start Scenario Planning

To effectively navigate the scenario planning process, you must first create a cash flow forecast to support your business. With your numbers in place, you will be better able to make accurate predictions to take your company in the right direction. We suggest starting here or here to learn more about this process. Once you have a better understanding of your business financials, then you can dive into the three types of models for scenario planning explained below.

Here Are 3 Models For Scenario Planning

  • Original plan – This should be the most straightforward scenario to create, and it utilizes your strategic business plan and budget for the year. The original plan scenario is a jumping-off point for the two scenario types below.
  • Probable case – Given the information you currently have, you should have an expectation for your business’s future. Your expectations could be positive or negative, depending on how you are fairing the current economic climate. Companies with more seasonality should refer to the quarters in the past to draw up a better picture.
  • Worst-case – As the company leader, you know your business better than anyone else. If revenues were to decline and unexpected expenses were to arise, how would those happenings affect your company? The worst-case scenario takes all of the “bad things” that could happen into account, so there are no surprises. Forecasting in this way allows you to take action now so your business can survive later.

Once you have developed each of these scenarios, the next step in the process is to stress-test them to ensure you know what will or won’t work for your company. If you are looking to first dive deeper into each of the individual scenarios, you can read the blog linked below.

Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

5 Questions To Stress Test Your Scenarios

Knowledge is power, and with your scenarios mapped out, you can feel more confident as to the direction your business is headed. However, what happens when the unexpected happens? When what you planned for and accounted for may no longer be valid options? By stress-testing with a few proven fundamentals, you can discover any shortcomings or weak points in your business strategy to ensure it is executed to the best possible ability no matter the pulse of the economic climate. Ask yourself and other company leaders involved in this process the following questions:

1. Who Is Your Ideal Customer?

Knowing your primary customer will allow you to allocate resources the right way without being sidetracked. Earmarking funds to multiple types of customers or clients will result in underperformance and less than ideal service. Your ideal customer may change over time, which is ok, but recognize that it may take restructuring to make this happen. For now, focus on one customer and ensure your scenarios cater to them.

2. Who Do Your Core Values Speak To?

Every company is different, and its core values may speak to clients, employees, or investors. Knowing who your values speak to will be necessary when making one business decision over another and having clear company messaging and direction.

3. Are You Tracking Key Performance Indicators?

Not only is it essential to track KPIs, but knowing which KPIs to follow is also critical. Creating a company scorecard is helpful so long as there are specific variables you are reviewing consistently. We recommend tracking six key performance indicators which you can read more about here. Remember, tracking too many variables will drive out innovation, so go with a less is more mentality here.

4. Are Employees Willing To Help One Another?

To effectively build an organization like a well-oiled machine, all the parts need to work well together. In business, this means that while your employees will have individual goals, they must be willing to help one another to drive strategy, collaboration, and communication, all while working toward reaching company goals.

5. What Unknowns Keep You Awake At Night?

Being scared or worried about the unknown is nothing new—as every business leader experiences these feelings. Take a tip from other failed business strategies, as those leaders made assumptions about the future and were wrong. The business strategy you are working so hard to create will not be a blanket strategy you can use for the lifetime of your business. To be successful, you must continually monitor the uncertainties that you are accounting for in your scenarios. Try and stress-test your scenarios annually to address changes and ensure you are successful in any economic climate. Depending on the industry your business is in, you may need to adjust this timeline more frequently.

Read More: Why You Need Financial Scenario Planning for What Ifs

Final Thoughts

Remember, scenario planning alone will not help you find an effective strategy for your business. Strategically thinking through and testing your plan to see where the weaknesses and strengths lie will be vital to come to the right decision. Even after all this planning, remember that life can still throw some unexpected curveballs (COVID-19 anyone?), and adjusting to those unforeseen circumstances will be necessary. While this may feel like a lot of information, this is just a starting point.

If, at any point in the process, you or your team feel overwhelmed with financial reporting, business strategy, defining your KPIs, or need some guidance when facing the difficult business decisions that lie ahead – please reach out to our team of experts.

eGuide: What Business Should Expect From Their Accounting Department

The Signature Analytics promise is to help with all of these areas and go beyond the numbers to improve your business performance and assist you in achieving your goals. Contact our team of experts for business and financial analysis and any other questions you may have during this challenging time.

Resources: https://www.smestrategy.net/blog/what-is-scenario-planning-and-how-to-use-it https://hbr.org/2010/11/stress-test-your-strategy-the-7-questions-to-ask


Do you know your numbers?

The onslaught and massive outbreak of Coronavirus causing COVID-19 in the last two months has caused the world to turn upside down. Economies have tanked and the DOW has seen the most highs and lows since the 1930s. In this blog, we provide a breakdown to support:

    • The current state of affairs given COVID-19
    • Key things we learned from the great recession and what we can apply today
    • The official definition of a recession and are we headed there?
    • And 10 tips to consider to get through this and come out on the other side

Prior to COVID-19, Economists around the world had been warning that another recession was possible in late 2020. Along with those warnings, there have been many articles to suggest businesses should start preparing given the looming economic downturn. While Economists might feel somewhat vindicated, most (if not all) were definitely not prepared for a downturn of this magnitude.

To say that a coming recession wasn’t written on the wall would be inaccurate. Forbes reported back in January that there were causes for concern for 2020 being a recession year. The two significant indications cited included:

  • an inverted yield curve in 2019
  • slow growth in the manufacturing industry

When on the lookout for a recession, the unemployment rate is another major area to consider. In February, the U.S. Bureau of Labor Statistics noted the unemployment rate was at 3.5% or roughly 5.8 million people.

The Los Angeles Times just recently reported in late March 2020 on California’s numbers citing, “The state’s Employment Development Department processed 186,809 claims for unemployment benefits last week, up from 57,606 the week before… The total last week was 363% higher than the number of claims processed during the same week last year.”

In an article from March, Forbes reported that this is the quickest peak to bear market in history. The decline only took a record 22 days.

With all of these statistics and influx of information coming to light, indicators make it seem that the United States is on its way to entering another recession. However, it requires two consecutive quarters of economic decline to meet the technical definition of a recession, and only the experts can officially declare we are in one.

With what seems like mostly all bad news, we wonder if there is anything hopeful we can latch on to for the future?

International Monetary Fund Managing Director, Kristalina Georgieva, released a statement following the G20 Ministerial Call on the Coronavirus Emergency where she said, “First, the outlook for global growth: for 2020 it is negative—a recession at least as bad as during the global financial crisis or worse. But we expect recovery in 2021.”

If we know going into this period that there is a light at the end of the tunnel, we can have the stamina to survive. Looking back at our last recession can provide some learning lessons too.

What We Learned From The Great Recession

Remember the story of Lehman Brothers? Before the 2007 recession, Lehman was the fourth-largest bank in the U.S.

Since its inception in 1850, Lehman had weathered many economic changes. The company survived the Great Depression, two world wars, and the near-collapse of hedge fund Long-Term Capital Management in 1998. But Lehman’s rush into the subprime mortgage market proved to be its downfall. To make matters worse, the bank paid little heed to the signs of the oncoming Great Recession. Lehman was still confident about the firm’s record revenues even in March 2007 as the market was beginning to collapse.

Five months later, as the credit crisis took hold, Lehman’s shares took a sudden dive. Throughout 2007, Lehman had underwritten more mortgages than any other financer, leading the firm to accumulate a portfolio of around $85 billion. In the fourth quarter of 2007, despite the cracks in the housing market, Lehman’s stock briefly regained buoyancy.

However, the company failed to cut back its mortgage portfolio while it had the chance, and it would never have the opportunity to do so again. On September 15th, 2008, the firm was forced to declare bankruptcy, wiping out more than $46 billion of its market value.

The greatest thing Lehman Brothers ever did was go through this experience to be a learning lesson for future generations. We can confidently say, don’t be like Lehman. Take actionable steps now for the oncoming recession to protect the future of your company. The first step is educating yourself and the other financial leaders of your company on what an economic slowdown truly means.

What is an Economic Recession?

As we mentioned earlier, an economic recession is defined as two consecutive quarters of negative economic growth. It is usually accompanied by a significant drop in the stock market, increased unemployment, and a slump in the housing market. Some factors for a recession include:

  • Falling interest rates
  • Rises in bankruptcies, defaults, foreclosures
  • Falling assets and dip in stock market
  • Reduced wages and rising in unemployment
  • Reduced consumer spending and confidence

Some recessions occur back-to-back, while others may occur up to ten years apart. Since World War II, recessions have lasted, on average, for eleven months each. A notable exception was the so-called “Great Recession”, which occurred toward the end of 2007 after the housing bubble burst and lasted for 18 months.

Fast forward to today, and we are faced with what individuals are already considering a recession. Technically, the committee who decides these matters could not formally state we have hit a recession until two quarters have passed.

Until then, we must consider how to forge ahead of this impending hardship. If you want your business to survive the next economic downturn, you will need to take tangible steps to make it recession-proof. Here are some ways you can protect your company from tough economic times that may be coming.

10 Tips to Recession-Proof Your Business

So, with a recession on the imminent horizon, where does that leave businesses today? Planning for your company’s future seems impossible in these times of uncertainty. What we do know is that an economic recession can wreak havoc on business leaders, companies, employees, vendors, and customers.

These are the ten tips our team of experts has compiled to help you navigate through these uncertainties:

1. Financially Prepare for a Downturn Before It Happens

Whether now or in the future, don’t wait for the first signs of a recession before you start to do something about it. By then, it may be much too late. If you don’t have a strategic financial plan, it’s time to get one.

Your strategic plan will help you understand how financially sound your company is today, so you can start saving to weather the next storm.

If you already have an updated financial plan, it’s time to start building a cash reserve. This may be the most crucial step you take. Start saving money in a bank account. Consider building enough reserve cash to cover at least six months’ worth of essential business expenses. Doing so will help you to sustain your company, and the longer you can maintain your company through the recession, the more likely you are to survive in the long-term, through good times and bad.

And if you’re unable to do this now, keep reading below.

Read More: Download our Strategic Budgeting eGuide

2. Develop a 13-Week Cash Flow Forecast

When faced with the unknown, the best way to set your company up for success is with an actionable plan. The critical steps here are to understand where your incoming cash is coming from, how much of it you are receiving, and how it is spent.

Having a grasp on this information can help to visualize the future from a cash perspective. Creating a 13-week plan will allow company leadership to account for all money, make adjustments where needed, and see where to adjust strategically. Be sure to review this document weekly.

Read More: Part 2: Actionable Advice from Our Founder to Improve Your Cash Flow

3. Scenario Planning

Preparing for an uncertain future is possible with tools like scenario planning. Taking a few different visions on what your company’s future could look like enables you to think through those possibilities and understand which outcome best sets up the business for success.

The three main scenarios to plan through would be the original plan, the probable plan, and the worst-case plan. As a business leader, working through each of these scenarios can bring forth thought driven data that should put forth solutions better than any reactive, gut feelings you might have during stressful situations.

Read More: Your Guide To Financial Modeling and Scenario Planning

4. Talk To Your Bank Today

Taking control of your finances today might be the single most crucial step you can make for your business. By proactively communicating with your banker and setting up a conversation with them, you are illustrating that your company is reliable.

You will first want to stay informed on how the bank currently views your business in three areas.

Ask which loans have been downgraded and what industries are being impacted the most. Is your sector secure or not? Honest conversations like these can help you understand how the bank will treat you going forward.

Ask about your business’s risk rating. If the bank decides to downgrade your loans, they will receive a higher risk rating, which ultimately means the bank will try and pass along costly expenses to you if you’re forced to leave the bank.

Read More: Planning and Managing Your Banking Relationship During COVID-19

In that same vein, you will want to maintain good credit. If you are asked to leave the bank and need to find another one, a high credit score is essential to borrow money. If you maintain good personal and business credit, you stand a much better chance of being able to take out a loan when you need it most.

5. Know Your Liquidity Options

One of the most important aspects of your business is its liquidity. It’s critical for paying employees and company bills, but it’s also crucial if you are conducting scenario analysis to help with decision making at your company.

There are many options to choose from when it comes to freeing up liquidity. Your best bet right now is to take advantage of special government programs that have been developed during the COVID-19 outbreak. Other options can range from alternative financing solutions, to using business assets, or even considering private equity investors who can give you cash in return for a partial stake in your business.

Don’t be afraid to think outside of the box and to negotiate for the best possible terms and options. To get ten more liquidity tips, be sure to check out our recent blog below.

Read More: 10 Liquidity Options for Businesses During COVID-19 Outbreak

6. Communicate With Your Vendors

With the current state-of-affairs, we do not know when things will get back to “normal.” If you’re lucky, your business and customers have not been affected at all by COVID-19. What’s more likely is you have. The question to be asking is, how has the Coronavirus impacted your company?

The only way to answer this question is through communication with your vendors and your customers to be sure your cash-flow is not compromised. Start by reviewing your contracts, then talking to your clients and customers. Analyze where the risks are and make decisions from there.

Obtain a full understanding of the bigger picture and create a strategic plan to maintain positive cash flow.

Read More:  The Importance of Proactive Communication & Talking to Your Vendors In This Crisis

7. Strengthen Your Customer Relationships

Your customer base is the most significant source of income. You can’t afford to lose them, especially during a recession, so make them your number one priority. Now is the time to make sure that your customer service is the best it can be. This will give you a higher chance of retaining your current customers and attracting new ones, even during a recession.

Show your customers they’re a priority by adapting your products and services to suit their needs better, as well as offering them incentive programs. During a recession, it’s more important than ever to keep your customers loyal by providing excellent after-sales service.

Read More: Determining Profitability Within Your Business: Analyzing Profits by Employee, Product and Customer

8. Master What Your Company Does Best

When you’re preparing for a recession, don’t stray away from your strengths and start something new.

Diversifying your business is not necessarily a bad thing, even if your company is small. But adding on products or services just to try something new isn’t a good way to protect yourself from an economic downturn.

Experimentation is making you more vulnerable. Instead, analyze the industries of your customers. If you have a decent number in recession-resistant sectors, focus on catering to their needs. How can you save them money, or even better, time? Can your services alleviate something on their plate that will give them peace of mind knowing you are handling it?

Focus on what your company does best and do it even better. This will ensure that you will have a stable foundation when the economy shifts.

Read More: Challenges of aggressive growth and how it can destroy your business

9. Beat Out the Competition

Not every company within your industry is going to ride out a recession. Make sure your company is the one that does.

To gain a lead on your competition, you will first need to research them. What areas are they outperforming you, and how can your company step up to the plate? Doing your research now can save your business in the long run.

With your out-of-the-box thinking, you may need to bring in the help of some automated software to help you drive more leads. Spending a little money now can help secure an active pipeline of good prospects in the right industry to carry you through the recession.

Implement more robust strategies into your business and hone them until they become second nature. Go beyond expectations and offer products or services that they don’t have on hand. During an economic recession, this will put your company ahead of your competitors in the eyes of your target market.

10. Don’t Let Marketing Fall Through the Cracks

It’s always good to review your marketing practices from time to time. If you’re expecting an economic downturn, it’s even more critical. Most companies will cut back on their marketing, creating an opportunity for you to gain more brand awareness and stand out from the competition.

In a recent article from Entrepreneur.com, the idea of perfecting your copywriting was a critical aspect of upping your marketing game. As more remote work is being implemented to cut down on social distancing, more individuals are looking for research and data on the novel Coronavirus. This creates an opportunity for your company to leverage its marketing materials, copy on the website, advertisements, and social media, and gain more engagement from your audience. Persuasive copywriting is the only way this can happen.

Brainstorm with your team other ideas to boost sales and maximize how you use your marketing dollars for the future. Identify your competitive advantage – what separates you from your competitors – and develop a unique selling proposition to push your company’s unique qualities.

Another idea is to productize service-based businesses. If you’re a service, identify how to productize some of what you do. Keep things simple to start and pick one area of focus. Products come in all shapes and sizes, from digital SaaS products to courses, to e-books, to anything that can be purchased and paid for online. Products can bring in additional sources of revenue, and if the customers are happy, they can drive word of mouth sales as well.

These strategies will help to keep your customers loyal through an economic recession while ensuring that you are making the most out of your marketing budget.

11. Bonus Tip from Chief Outsiders

Chief Outsiders recommends launching new offerings to help capitalize on delivery services to your clients in fresh ways. This could be through virtual offerings, digital assets like teaching, training, or coaching, free or limited subscriptions, or other services you can provide. Finding unique and creative ways to meet your clients where they are can keep your business on their mind while supporting them in their new work environments and compiling with government-mandated behavior.

Final Thoughts

Although we can’t be 100% certain that the Coronavirus will lead the US into a proper recession, it’s essential to prepare now. Don’t be caught off-guard in the event of an economic downturn.

While nothing can guarantee your business will make it through a recession, strategic planning can help to give you a fighting chance and may help you keep your head above water while your competitors may sink.

Need help taking the steps to recession-proof your business? Our team of experts can help! Contact us when it is most appropriate for your organization, and we can help give your company a fighting chance to ride out the looming economic storm.

As COVID-19 continues to impact the global economy for the second month, we still have more questions than answers.

We still don’t know how long we’ll need to maintain social distancing to halt the spread of the virus, nor how long entire industries will be shut down. We also don’t know how the actions we take to preserve public health will impact the global economy in the months — and perhaps years — to come.

What we do know is that taking control of your company’s cash flow is more important than ever to ensure your business survives the storm. Whether your business is currently in crisis-mode or has a large rainy day fund, we recommend all companies review their financial situation and make strategic adjustments to navigate the rough waters ahead.

In Part 1 of this series, we explored why your cash flow is even more critical now, and strategies you can take if you lack the cash flow to minimize the damage to your business. If you missed it, you can read it here.

For Part 2, we’re sharing how the Signature Analytics team is working with our clients to be sure they have full visibility into their financial situation, spot any risks, understand all available options and make strategic plans for the future. Read on for actionable advice your business can use to take control of your cash flow and position yourself for future success.

Read More: How to Recession-Proof Your Business: 7 Tips to Thrive in an Economic Downturn

Develop a 13-Week Cash Flow Forecast

The first step in facing an uncertain future is creating a plan. You’ll need a thorough understanding of how much incoming cash you can expect for your business, and how much your organization is spending. You’ll also want to prioritize your accounts payable in case of an emergency.

We recommend that every business immediately create and follow a strict 13-week plan — regardless of your current financial situation. This 13-week cash flow forecast will account for all expected revenue and expenses for the next quarter, and give your company’s leadership the visibility it needs to make strategic decisions. Your team should review the forecast weekly and make adjustments as necessary.

Even if you intend to apply for a disaster relief program, your expenses are continuing to build daily. You might also find yourself waiting several weeks until those funds become available. Having that critical visibility into your cash flow situation empowers you to make the strategic decisions necessary to keep your company in the best possible shape through this uncertain time.

Plan for Various Scenarios

Just as it’s critical to understand your company’s cash flow situation, it’s just as important to understand what to do with that information. Scenario planning is exactly what it sounds like — a detailed gameplan for what to do, should your circumstances change.

As you create your plan, we recommend focusing on each of these scenarios:

  1. Your original plan – This is the plan you sketched out in advance, based on your anticipated revenue and budget.
  2. A probable case based on current data – Based on the information you have today, this scenario represents what’s most likely to happen to your company
  3. The worst-case – Should your company face an extreme disruption to revenue, this plan will guide you through the challenge.

When you’re determining how your business will operate through COVID-19, your plan should consider both near-term and longer-term responses. Forbes notes that this crisis will have four distinct phases: Awaiting the impact, withstanding the impact, returning to normal, and sorting out the new industry dynamics. As you create your gameplan, consider each phase of the cycle.

In the weeks to come, as your company awaits and withstands the impact of COVID-19, you may need to implement layoffs or furloughs or consider any tax credits available. How will each option impact your cash flow in the short-term?

If those weeks turn to months, you’ll need to consider how each of those options will impact your business beyond the balance sheet, and adjust your plans accordingly. You’ll also need to think about how much of the pent-up demand will return, and how your industry might change as companies get back to business as usual.

Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

Communicate With Your Bank

We cannot stress the importance of proactive communication enough. Regular updates build trust in your organization and keep your employees, customers, and strategic partners in the loop on what to expect from you.

While you’ve probably already crafted a plan to communicate with your employees, customers, and vendors, there’s one strategic partner you might have overlooked — your bank.

Proving your business is reliable will cement your bank’s trust in your organization, which can help you gain their support in this time of crisis. Craft your communication plan by thinking of these four key areas:

  1. Stay informed – Understanding the issues your bank may be facing will give you a stronger perspective into how the institution will react.
  2. Keep your paperwork up-to-date – Being transparent with your bank, even if your financials are not where you’d like them to be, will build trust in your company. As you review your 13-week cash flow forecast, consider sharing this with your bank to show your company has a plan to navigate the crisis.
  3. Proactive communication – Most business loans have a default clause that allows banks to consider insecurity to be an event of default. This means that if your bank has any doubts about your ability to repay your loans, it can demand immediate repayment. Keeping your bank informed about your situation and operating with transparency will keep your financial institution from becoming insecure about your ability to repay loans.
  4. Modify existing finance terms – If your business is facing a cash flow crunch, you may benefit from modifying your existing payment agreements. Be prepared to present your case, show documentation to show your financial situation, and provide a 12-month budget to show how your company will continue to pay its obligation.

Read More: Planning and Managing Your Banking Relationship During COVID-19

Review Any Government Relief Programs Related to COVID-19

As a response to the crisis posed by COVID-19, the federal government implemented new programs aimed at cushioning the virus’s impact on businesses and workers. If your business needs support, consider the following programs.

CARES Act

The CARES Act is probably the most well-known piece of legislation in response to COVID-19. While the details of how relief funds are still being worked out, here are a few key highlights of the bill:

  1. Direct payments to American who pay taxes
  2. Unemployment program increases and expansion
  3. Use of retirement funds without penalty up to 100,000
  4. 401k loan limit increase from $50k to $100k
  5. IRAs and 401ks required minimum distribution suspended

For businesses, the CARES Act includes the following key provisions:

  1. Payroll tax defermentUnder this law, employers can delay paying their 2020 payroll taxes, and instead opt to pay over the next two years.
  2. Small business relief – This law dedicates $350 billion to prevent business closures and layoffs during the social distancing period. The federal government will provide up to eight weeks of cash flow assistance to help companies with less than 500 employees keep their workers. If companies meet the requirement by maintaining their payroll, portions of this loan would be forgiven.
  3. Large corporation relief – For companies with more than 500 employees, the federal government will dedicate $500 billion to provide loans, loan guarantees, and other strategic investments with oversight from the Treasury Department. Unlike loans available to small businesses, these loans will not be forgiven and repayment cannot last longer than five years.

Small Business Association Disaster Relief

The CARES Act includes $350 billion dedicated to helping small businesses mitigate the effects of COVID-19, which makes it worthy of detailing further. We know that at least 220,000 applications have already been submitted just days after the program launched. Now, Treasury Secretary Mnuchin has requested another $250 billion to be dedicated to the program to help support the growing demand. If that additional money is granted, businesses must meet the following criteria to be eligible:

  • Small businesses with less than 500 employees affected by COVID-19
  • Companies larger than 500 employees that meet the Small Business Association’s industry-specific size standards
  • Hospitality and food-industry businesses that have multiple locations may also be eligible if individual locations employ less than 500 people.

This federal program provides four critical areas of relief:

  • Paycheck protection – Designed to help companies keep their employees on the payroll, this program offers loan forgiveness if all employees are on the payroll for eight weeks, and the money is used for payroll, rent, mortgage interest, or utilities.
  • Emergency cash advance – For companies experiencing temporary difficulties, this program will provide up to $10,000 of funding that won’t have to be repaid.
  • SBA bridge loans – This provision provides up to $25,000 for small businesses that have an existing relationship with an SBA Express Lender.
  • SBA debt relief – Businesses that have existing SBA loans are eligible for automatic deferral and/or payment of principal, interest, and fees for eligible loans.

Specific eligibility requirements for each of these areas is available on the U.S. Small Business Association website.

To apply for these programs, visit the SBA website and check the requirements. Some require you to fill out an application directly from the website, while other programs will refer you to specific lenders for assistance.

For applications on the SBA’s website, you’ll need to provide detailed information on your company, including revenue, losses due to COVID-19, and bank information on where to send the funds.

As the COVID-19 crisis continues to unfold, new support is becoming available daily. Even if you’re not sure that your business has suffered “substantial economic injury,” we recommend applying proactively to ensure those funds are available to you when and if you need them.

Analyze Operations for Risks and Cash Impact

Once you have a thorough understanding of your business’s cash flow situation, it’s time to take a closer look at any potential risks and how they may impact your cash flow. We recommend starting by focusing on these three areas: revenue and expenses, supply chain, and employees.

Supply Chain Risks and Cash Impact

As businesses and governments look to mitigate the economic impact of COVID-19, analyzing your supply chain has never been more important. To make sure you’re delivering the best possible product or service to your customers, you’ll need to know how reliable your supply chain is.

For example, consider how the crisis impacts your key suppliers. Will they be able to reliably supply the resources your company needs? Are any of your suppliers at risk of disruption — or worse?

To mitigate any potential supply chain disruptions, we recommend communicating with your partners early and plan for any cash flow impacts.

Employee Risks and the Cash Impact

For many companies, their most significant expenses are tied to employees. Whether it’s payroll, office perks, or discretionary spending, expenses related to labor are often the first to cut when times get tough. Of course, this doesn’t mean you necessarily need to reduce staff right away. Consider these tips to cut costs:

  • Reduce travel costs and non-essential meetings
  • Impose hiring freezes
  • Cut discretionary spending, like happy hours or training conferences
  • Shift work from contractors to permanent employees
  • Implement furloughs or voluntary unpaid leave

Revenue and Expenses

If you’re not already creating detailed revenue and expense reports, now is the time to start. As you review your reports, pay special attention to customers who may stop using your product or service. We also recommend looking for other expenses you can defer in the event of a cash flow crunch.

If you need additional support in this area, Signature Analytics can help your team by providing:

  • Operational Accounting Support
  • Technical Accounting & Reporting
  • Actionable Financial Analysis
  • Financial Consulting
  • Cash Management and Forecasting

Whether you need help with basic accounting or higher-level analysis and strategic planning, our expert-level team will look beyond the numbers and provide the support you need to navigate the current period of economic uncertainty. Reach out today to discover how Signature Analytics can position your company for brighter days ahead.

As COVID-19 rampages through the global economy, many businesses are trying to weather the storm. Several businesses have shut their doors in the name of public health, and others that remain open have seen a staggering drop in revenue as their former customers stay home. For others, some businesses have been able to quickly adapt and are even booming.

Nobody knows just yet how long this crisis will last, which leaves many businesses vulnerable. Even companies with solid disaster plans are finding themselves caught off-guard by the sudden and massive economic disruption. For business owners looking for guidance, the best thing you can do to survive a crisis is to take control of your cash flow — if you run out of cash, your business fails. It’s that simple.

If you find your business in crisis, there are steps you can take to minimize the damage. Analyzing your current situation, optimizing your payments, and reducing your cash to conversion cycle are three ways you can help your company make it through this uncertain business cycle.

Read More: 10 Tips To Help Improve Your Company’s Cash Flow

Know Where You Stand

Understanding the full picture of your current situation is critical for managing your company’s cash flow. Start by reviewing your expenses, such as payroll and benefits, marketing costs, research and development, cost of goods sold, and any other general expenses.

Next, track the timing and amounts of cash inflows and outflows. Cash inflow happens when you get paid from customers purchasing your product or service, loans and borrowing, and asset sales. Cash outflows are payments you make, such as payroll, facilities expenses, and payments on debts.

Then, take a look at your bank balance and get the answers to the following:

  1. How much cash is in your account?
  2. Are you expecting any accounts receivable in the next week?
  3. How much is due for accounts payable?
  4. Are there any outstanding payments that haven’t cleared?

Conversely, if you are one of the businesses is weathering the storm successfully and experiencing high growth as a result, we still can’t stress the importance of knowing and understanding where your cash is flowing in and out of your business. If this goes unmanaged properly with the right processes and controls, you can find yourself in a challenging situation, especially as the banks become more conservative.

Review Reports Weekly

After you know your company’s cash status, the next step is keeping tabs on your financial situation with regular reporting. Consistent and accurate reporting gives you visibility to forecast future revenue and ultimately improve profitability.

If you typically generate monthly reports, consider shortening the duration to weekly during a crisis. The more often you review the numbers, the faster you can react to any swings in the market.

Look at your income and cash flow statements to create a projection, and combine this with key metrics from your balance sheet, such as:

  • DIO (days inventory on-hand)
  • DSO (days sales outstanding)
  • DPO (days payables outstanding)

Next, take a look at your expenditures. Record the amount your company pays for capital expenditures, debt repayments, and other operating expenses. As you’re recording this information weekly, pay special attention to how actual results differ from your projections. Analyze the differences and use your findings to refine and improve the accuracy of your forecasts.

Get a Handle on Payments

Your business has both short-term and long-term obligations that impact your cash flow. Short-term commitments are what keep you operating each day, such as payroll and inventory. Long-term commitments are typically capital investments and debts.

As you review your weekly reports, make sure your incoming funds exceed your outgoing obligations. If they don’t, look for ways to cut your expenses. Having funds that exceed expenses will ensure your otherwise profitable business has the cash on hand it needs to handle this and future crises.

Triage Accounts Payable

If you’re struggling with cash flow, the first order of business is to limit the amount of cash that goes out the door. Review your accounts payable and determine which invoices are most important.

Pay your invoices in order of priority, with the most critical payments going out first. Next, communicate with your vendors and try to negotiate new payment terms. If you’ve been a loyal client, you may find your vendors are willing to extend some flexibility.

Maximize Accounts Receivable

In addition to increasing sales, you can optimize your accounts receivable to boost your short-term cash flow. If you send out invoices on a set day each month, try sending them out early. Even if your payment deadline remains the same, your customers may wish to send in their payments in advance — adding an infusion of cash.

Another option is to encourage your customers to pay early. Consider creating incentives for early payment, such as a credit for future months or extra services.

You could also turn to technology for help. By delivering invoices electronically, you can shorten the time between billing and collection. You may also want to implement a vendor portal, which gives your vendors electronic access to view their invoices, make payments, and it streamlines communication.

As a bonus, new technology solutions also typically provide timely and robust reporting that arms you with the information you need to proactively resolve delinquent accounts or take full advantage of any discounts.

Optimize Operations

After reviewing your accounts payable and accounts receivable, look for efficiencies within your finance department. Implement new practices to reduce error rates on invoices and make sure collections are followed up upon promptly. Your team should also make sure you’re receiving all available volume rebates and trade spend initiatives.

Regularly review your supplier contracts and look for opportunities to negotiate more favorable terms and rebates. Benchmark your agreements against others in the industry and make sure they meet established standards.

Streamline Your Cash Conversion Cycle

Businesses with strong cash flow management policies and procedures in place typically have a shorter cash conversion cycle (CCC). The longer your CCC, the more working capital you’ll need to manage your operations. The shorter the CCC, the more manageable your cash flow through current operations.

Knowing this number will help you understand how long it takes to bring in cash. Knowing where you stand is the first step to improving your situation.

To calculate your CCC, use this equation:
Cash Conversion Cycle (CCC) = DIO (Days Inventory Outstanding) – DPO (Days Payable Outstanding) + DSO (Days Sales Outstanding)

One of the fastest ways a company can reduce its cash conversion cycle is to turn over inventory faster. It’s simple math. The quicker a business sells goods, the sooner it receives the cash influx from sales. Analyze your accounts and product offerings to identify products and services that aren’t profitable and reduce any slow-moving or obsolete profits so you can reduce your inventory.

For items you plan to discontinue, consider cutting your losses — even if it means selling them at a substantial discount. Selling these items at a loss will still bring in cash that can help you through a disruption.

You may also consider adopting a just-in-time strategy for inventory management. With this approach, supplies are delivered as they’re needed, instead of weeks, or even months, in advance.

One word of caution: If you’re adjusting your supply chain strategy, consider the cash-flow implications before making any changes.

For example, if your company sources products from low-cost countries, your price may be lower on a per-unit basis. But, you may also need to purchase a higher volume or stock up earlier to account for longer shipping time.

If you switch to a more local supplier, you may pay more on a per-unit basis, but you can purchase a lower volume of product on an as-needed basis. The ideal strategy depends on your company’s unique product mix, clientele, and financial situation. Make sure you understand the implications of each approach to make a more informed decision.

Make It Through Uncertain Times

How your business makes it through the COVID-19 crisis depends directly on your cash flow. Understanding where your business stands, streamlining your accounts payable and receivable, and reducing your order to cash cycle will give you the best possible chance you have to make it through these uncertain times.

If you need additional help with cash flow management, including developing detailed financial projections, reducing your order-to-cash cycle, or strategic disaster planning, contact Signature Analytics.

Read More: Why You Need Financial Scenario Planning for What Ifs

Our team of accounting and finance experts has a wealth of knowledge and experience in a variety of industries so that we can provide the best level of expertise and service to support your business during these trying times.

As COVID-19 spreads across the globe, bringing with it shelter-in-place orders, shuttered businesses, and widespread economic uncertainty, many businesses are operating in crisis mode.

Nobody knows whether we’ll be back to business as usual by summer, or if the effects will ripple through the economy for a year or more. But there are steps you can take to keep your business solvent in the coming weeks and months.

  • Step 1: The first step to weathering the storm is to take control of your cash-flow situation. And do it now. After all, if you don’t have enough cash to maintain your operations, your business fails.
  • Step 2: Ask yourself, but what happens after that? Not only are businesses unsure of their day-to-day operations, but it’s also unclear how their supply chains and clients are handling the disruption.
  • Step 3: Find out if will you still be able to receive the supplies you need for your operations. Are your customers cutting back on your product or service as they create their crisis plans?

The only way to gain a better understanding is through proactive communication. Reach out to your vendors and customers to understand the issues they’re facing. Knowing the effects on your partners will help you get ahead of problems, understand the impact on your market and supply chain, and position your business to alleviate some of their challenges.

Here we have created a tangible guide on what to ask your vendors and customers, and what steps you should take to preserve your cash flow and secure your business.

Read More: 10 Tips To Help Improve Your Company’s Cash Flow

Review Vendors and Contracts

The first thing to do is to review your vendors and take action to preserve your cash flow. Make a list of each vendor you work with and determine which partners are essential — and which are not. Next, review all of your contracts and agreements to find the payment terms for your major vendors, suppliers, and other expenses.

Once you know which vendors are essential and the payment terms of your contracts, it’s time to make a plan. If you’re amid a cash flow crunch, use the list you created to determine how you’ll manage your accounts payable.

From there, prioritize payments to your major suppliers and vendors, because these people will keep your business open. For non-essential vendors, slow payments to prevent valuable cash from going out the door. If you’re struggling to pay vendors, the next step is to negotiate payment terms. Talk to your key vendors and explain your situation. If you’ve been a long-term partner, you might find that they’ll offer you flexibility. If your vendors are struggling with their cash flow crisis, they may be willing to take partial payments or negotiate another arrangement to bring cash in the door.

When it comes to expenses such as office leases and facilities, reach out to your building’s owner or property manager to proactively offer a payment plan that aligns with your adjusted cash flow. By communicating potential issues in advance, your landlord will be more confident that they will continue to receive payments — and preserve their cash flow. If you need help structuring a payment plan or working with property managers, a real estate broker can assist.

Learn How COVID-19 Impacts Your Vendors

As you talk to your vendors and make plans to preserve your cash flow, find out how the virus is impacting their businesses. To minimize disruption, assess whether your vendors can continue to provide service, at what level, and for how long. If you’re not entirely confident that your vendors can continue to supply critical goods or services, it’s time to create a contingency plan.

If your business is in a strong position to endure the economic downturn, look for opportunities to increase your revenue after the crisis. A profitable acquisition for your company could be subcontractors or other partners who are struggling to make it through.

In addition to understanding how Coronavirus is impacting your vendors, be proactive about the effects your business is facing. Tell them how your company is handling the virus, how you’re affected, and any other relevant information. Just as your vendors impact your cash flow, your business impacts their cash flow. Being proactive and upfront with your status creates goodwill, but more importantly, gives your partners information to forecast their revenue and devise contingency plans.

Read More: Why You Need Financial Scenario Planning for What Ifs

Know Your Market: Talk to Clients and Customers

Your vendors are not your only priority. Reviewing your clients and customers is critical to find potential risks to your cash flow. Evaluate your key accounts and determine who may be likely to cancel or delay their orders or service contracts. For those who may be at risk of cancelation, reach out to those clients about delaying or pausing service. While your cash flow will still be impacted in the short-term, delaying contracts makes it more likely your business will recover in the long-term.

Additionally, consider restructuring the payment terms of your contracts or working with your clients to create other short-term solutions. When it comes to maximizing your emergency cash flow, maintaining some level of accounts receivable is still preferable to none at all. When business returns to normal, it will be easier to resume payment from clients who pause or modify their payments than it would be to repeat the sales process.

Learn How COVID-19 Impacts Your Clients

After you’ve analyzed which clients are the most affected, learn how the virus is affecting the rest of your customers. In particular, determine which clients may struggle to make on-time payments. Proactively work with them to create a plan that benefits both of you. Negotiate payment plans that encourage payment instead of default — even if that means a short-term delay.

For those clients who are in a strong position to navigate the crisis, take advantage of their position to bolster your cash flow. Send invoices earlier than you typically do to encourage early payment. Consider offering discounts to those who pay in advance, so your business can benefit from the infusion of cash.

Don’t forget to update your clients on how Coronavirus impacts your business. Provide transparency on what changes will affect their service, communicate flexibility with payment terms, and speak to other ways your business can help them navigate through this period. This information will give your clients peace of mind while building long-term goodwill that will last long after this pandemic.

Minimize Disruption With Proactive Communication

The sudden, drastic disruption to daily life caused by the COVID-19 pandemic is unlike anything most of us have ever seen. By proactively communicating with vendors and customers, you’ll have a clearer picture of how their business is affected, and in turn, how your business will be affected. Having a full understanding of the effects will give you the information you need to create a strategic plan, maintain positive cash flow, and weather the storm.

If you need help analyzing the risk to your business, improving your cash flow, or disaster planning, contact Signature Analytics for a free consultation. Our expert team of finance and accounting professionals has experience with a wide variety of industries and business sizes, providing us the expertise to guide your business through these challenging times.

Liquidity is one of the most important factors in your business. It means whether you can pay your current obligations using your existing assets. In simpler terms, can you pay your bills and make payroll this month? It’s easy to see that liquidity is a key factor in keeping your doors open over the next few months of uncertainty.

Even if you aren’t worried about making your payments in the short-term, should you be looking into liquidity options now?

The short answer is: yes, especially if you’re conducting some scenario analysis to help with decision making. We’ve gathered 10 great ways to increase your liquidity and cover expenses during the current economic conditions. Whether you need them today or may need them in the future, it’s a great idea to freshen up on your options.

1. Reduce Overhead

Reducing overhead can help get your business through tough times. It’s best to be proactive with this and begin taking steps to reduce costs before you’re faced with financial trouble. Here are some ways you can start:

  • Eliminate non-essential expenses
  • Freeze hiring for open positions
  • Cancel business travel and opt for video conferencing
  • Reduce hours of part-time staff where possible
  • Eliminate non-essential part-time and salaried workers as a last resort

2. Negotiate with Lenders

As the COVID-19 outbreak continues, it’s important to nurture your relationship with your current bank and credit card companies to strengthen their trust in your business. Remember that everything is negotiable. Here are some things you can consider:

  • Review the terms for all business loan agreements and revolving lines of credit (RLOC)
  • Consider refinancing debt to extend terms and reduce payments
  • Negotiate reduced interest rates on loans and credit cards
  • Request a credit line increase for credit cards and ROLC
  • Negotiate to pay only interest on the debt if finances become tight

The best way to start this is to request a meeting with your banker and the decision-maker at your bank. A face-to-face meeting is ideal, but with the COVID-19 restrictions, you’ll need to stay 6-ft apart. Or, opt for a video conference as a last resort.

Plan ahead and make sure to have up-to-date financials ready to present to them. Outline your plan to pay back the debt and steps you’re taking to reduce costs in the immediate future. All of this will help build the bank’s confidence in your business.

You should be prepared to offer a personal guarantee or additional collateral in order to secure additional financing. This will show that you’re committed to the business and are stepping up as an owner.

Read More: Planning and Managing Your Banking Relationship During COVID-19

3. Special Government Programs for COVID-19

There are special programs being developed through the government for COVID-19. It could take a while to receive funds because the programs are still being created, but it’s good to start the process now.

We’ll be posting government programs as they become available in our: Coronavirus Business Resource Center.

Business owners can apply directly to the SBA for an economic injury loan. You will need to document the loss of revenue from the COVID-19 disaster, which your representative at Signature Analytics can help with.

Check out additional information here: https://business.ca.gov/coronavirus-2019/.

In the meantime, you should prepare for submitting a full lending package to the SBA, including all the information listed here:

  • 3-year federal business tax returns
  • Current interim (end of last month)
  • AR & AP agings (end of last month)
  • 12-month projection prior to COVID-19
  • Reforecasted 12-month projections
  • Spreadsheet of the loss of revenues calculation along with fixed expenses for the same period
  • Updated Personal Financial statement for all owners, greater than 20%
  • 3-years federal personal tax returns

All of the above items will be required. The SBA will make credit decisions based on a complete package for each and every business. Get a head start gathering these items and put them in a secure drop-box or data room (current best practice)

If you need help putting your lending package together for the SBA, Signature Analytics can help. We have experts available to help you get the funding your business deserves.  Contact us today to get started on this process.

4. Financing Options

Check your terms with current vendors and negotiate an extended payment period. Increasing your payable terms out to 30-180 days, depending on your relationship with the suppliers, can help you cover urgent invoices.

You can also look at financing companies to secure additional funding. They may offer more flexible terms than traditional lending sources, but they’ll also look at your collateral in much greater detail. Consider some of these options:

If you choose to use a financing company, make sure you look at the total cost of the funds. They will have more fees and higher rates to offset the increased risk.

5. Use Business Assets

Your accounts receivable and equipment can help you get cash in a pinch.

An asset-based lender will provide your financing based on your monthly AR. This is a great option for businesses with creditworthy customers. Furthermore, factoring your accounts receivable might be a solution too. Selling your accounts receivable can increase your cash fast, but you won’t receive as much as if you were to collect the invoices in full yourself. You’ll incur a fee, plus the receivables you sell will only be sold at a percentage of their full value. Make sure you know the down-side to each available solution.

In addition, you can use existing equipment as collateral for loans. Companies like Ford Financial and LendSpark will arrange an appraisal of the equipment and could grant you a loan based on its value. Always, understand the full cost of this type of financing before committing.

6. Use Real Estate

Real estate is one of the best forms of collateral that a business owner may have available. Know that the process could take a while, so try to prepare in advance as best as you can. Here are some things to know:

  • Underwriting, appraisals, environmental reporting, and other due diligence can take 30-60 days
  • Loan-to-value (LTV) ratio is generally less than 85% of the appraised value, meaning you can’t count on the full value of the real estate
  • Some SBA lending programs allow an LTV ratio of up to 90%

If you choose SBA options, make sure you’re working directly with someone who has done hundreds of SBA loans in their career. There are lots of requirements and specific paperwork to complete because SBA is a government guarantee of the loan. The process will take quite a bit of time and having the help of an expert is crucial. Harvest CRE is an option.

You can choose to work with banks. They may have more conservative terms and will likely want you to have a deposit account at the institution.

Non-bank lenders, such as Harvest Small Business Finance, may be more flexible with terms. Plus, you will not have to move your deposits to them in order to receive the loan. However, they can be more expensive. Just check your options before you commit to anything.

What about home equity?

Home equity is another great option to add liquidity if your owners have this option available. Owners can refinance their personal properties for potentially lower rates right now.

7. Friends and Family

Your friends and family know you and understand your business. You can lean on your existing relationship with them to secure funds. Be transparent with them and provide a solid plan on repayment, including a return on their investment. Sign and document the terms of the loan just like you were dealing with a bank or private equity.

Mixing personal and business relationships, especially with money involved, can be tricky. Be prepared for this to affect your personal relationship, whether for better or worse.

8. Merchant Card Advance

(Warning Read the Details) A merchant card advance can be helpful in a pinch. If you receive most of your revenues by credit card payment, you can secure an advance from the merchant card. In return, the merchant will take a percentage of your future sales until the loan is paid, or you can arrange daily or weekly payments instead. It’s an easy way to get money, but it also comes with higher rates and fees, so look closely at the repayment plan. Make sure you have a dedicated way and plan to pay this debt off.

9. Mezzanine Finance

Mezzanine financing is an industry-specific, strategic capital that can be used for growth. This unsecured debt is usually subordinate to senior lenders. HCAP Partners is a solid option.

10. Private Equity

Private equity can give you cash in return for a stake in your business. Beware of investors who are looking to take advantage of the current situation. On option during this pandemic, ask for convertible note terms so you can refinance the note and protect your ownership position.

Final Thoughts

As you navigate through the COVID-19 outbreak, you can think outside the box for ideas on liquidity. Remember that everything is negotiable. With the uncertainty ahead, make sure you’re asking questions and preparing your financials. When you do need financing, you’ll want to let your numbers tell your story and show how your business is performing.

And if you want a trusted advisory by your side to help guide you along the way, contact us today.

The recent outbreak of COVID-19 has drummed up feelings of uncertainty among individuals and businesses alike. With each passing day, new developments paint bleak pictures of future finances on both personal and organizational levels. We can all agree that everyone has more questions than answers about the best way to move forward into the uncharted waters ahead.

However, there are plenty of actions that you can take today that will help relieve financial stress and set you on a path to continued success. Most of these require very little extra effort on your part, but the payoff can be tremendous. In fact, whether you take action on your finances now could mean the difference between your business thriving into this next decade or closing its doors by the end of the year.

We’ve gathered some of the best ways to ensure your business stays successful through this difficult time and we’re ready to share them with you today.

Our biggest piece of advice to you: be proactive and drive the communication with your banking relationships starting today. You may need to lean on your bank through this time. As you move through these next few months, show your bank that you are prepared by keeping up-to-date with your business finances. You’ll gain the bank’s confidence and prove that your business is reliable, which will help you gain their support during the crisis.

Stay Informed

The best way to start managing your banking relationships right now is to stay informed on what’s happening. You can take some steps to learn how your business appears in the eyes of the bank. That will help you anticipate what the bank may do with your financing in the future.

Ask About Problem Loans in Your Industry

Ask your bank if there are loans in their portfolio that have been downgraded. What industries are being impacted? If other businesses in your industry are at risk of defaulting on loans, your bank may take extra precautions with any/all clients who touch that industry.

The bank could evaluate all the loans from businesses in the “bad/tainted” industry. Unfortunately, this can mean that your business is asked to exit the bank entirely.

Check Risk Ratings on Loans

Every business and real estate loan with the bank has a risk rating. The risk rating determines how much capital the bank must allocate to its loan loss reserve in case the loan goes bad. For example, if a $1 million term loan is assigned a passing risk rating, the bank may only have to reserve 1% of the loan ($10,000). That means the bank would have $10,000 expensed on their income statement for that particular loan in the month the loan is funded.

If that same term loan is downgraded to a “Watch” risk rating, the bank would increase the loan loss reserve to 10%. In that case, the bank would have an additional $90,000 expensed through its income statement during the month of the downgrade.

Why is this important for you?

If the bank begins downgrading your loans and assigns them a higher risk rating, this means the loans are more expensive to the bank and greater risk of write-off. The bank will attempt to pass those costs onto you along with asking you to exit the bank.

Know What Assets are Worth

If you need to apply for additional financing, the bank most likely will ask for collateral. Each bank is different given their credit appetite, but here’s a quick look at what your assets could be worth:

  • Accounts Receivable: 60-80% advanced rate
  • Inventory: 15-50% advanced rate for raw materials and finished goods, though it’s tough to finance inventory unless it’s a commodity
  • Fixed Assets: 50-90% advanced rate, but will require an appraisal
  • New Equipment: 80-95% advanced rate based on the Purchase Order (hard costs)
  • Real Estate: 60-85% advanced rate

Proactive Communication

We can’t stress this enough. Most business loan agreements have a default clause regarding “Insecure” to be an Event of Default. If the bank considers your loan in default because of insecurity, they can demand immediate repayment.

How do you prevent this?

The best way to keep the bank from feeling insecure about your business is to communicate with them. You can request a one-on-one meeting with your banker and their supervisor. Under the current conditions, it may be best to use a video conference technology instead of having a face-to-face meeting.

Talk with your banker about the state of your industry, business and how you’re handling any financial changes. If you plan to draw on your revolving line of credit (RLOC), make sure you communicate your plans to your banker and explain your plan for repayment. Keeping them in the loop will help them feel more secure about your relationship and could prevent them from putting your loan(s) into default.

You may consider inviting your banker to a virtual meeting with some of your other trusted advisors. This could include your CPA, attorney, fractional CFO, and board members. If you work with us already, we should be included as well. If your banker is there, they will further understand what’s happening in your business and how your leadership is taking action.

Read more: Renewing your business line of credit

Update Your Bank Often

Keeping your bank updated on your business financials can help them have confidence in your business. Even if your numbers aren’t where you’d like them to be, being upfront about where your business is can help ease any doubt that the bank has. If a business isn’t willing to share what’s happening, that could mean they’re in trouble.

As you move through uncertainty, continue reporting on a timely basis and within the financial covenant(s). Be proactive with your communication if something is going to be delayed. Instead of reporting information late, request a waiver from the bank ahead of time. It’s a simple step that can help improve the bank’s confidence in your business.

Here are some things you can consider updating with your bank as you move through the next several months:

  • Monthly financial statements, including balance sheets, income statements, inventory reports, budgets and forecasts, AR and AP aging reports
  • Weekly cash flow statements and forecasts
  • Updated personal financial statements on all owners with more than 20% stake in the business

Above all, make sure you’re providing any information that the bank requests in a timely manner.

Update Financing

The need for additional financing, or to modify existing terms, might arise as you move through the next several months. Even if you don’t believe it will, it can be a good idea to request extended loan terms now in order to prepare. The banks could get overwhelmed with requests over the next several months. If you can be proactive and start requesting amended loan terms or additional financing now, it can help you secure funds that may be unavailable to you later in the year.

What’s the best way to do this?

Before you approach your bank with the request, make sure you’ve built a strong case. Doing your homework and preparing for the meeting will help communicate that you are leading your business to your banker. You’ll build trust and credibility with the extra effort, which can increase your chances of being approved.

When you do have the meeting, request that the decision-maker attend the meeting. That may be the credit officer, bank president, or other executives at the bank. Present your case to them, including your cash flow and repayment sources. Explain your plan for debt servicing the additional debt and also provide a 12-month budget to further demonstrate how your business will be able to cover the financing.

Read More: How to create the perfect budget for your business

Take Action and Plan for the Future

As you move through the next several months, there are a few things your business can do to keep things moving smoothly.

Rely on Owner(s)

The owner(s) of your business may have some personal funds/ assets available that they could loan the business in order to keep the doors open. You can either consider this as paid-in capital or subordinated debt (consultant your tax CPA).

If you choose to use the funds as a subordinated debt, make sure you properly document it. Allow the bank to subordinate it to the bank’s debt, which shows that your business is willing to do what it takes to strengthen your relationship with the bank.

Reduce Cash Outflows

This can seem like an obvious, yet difficult, solution to financing problems. Reducing cash flows should be done carefully and cautiously.

What’s the best place to start?

Determine how much cash your owner(s) need to live each month. Then, you can defer their salary and/or distributions until later in order to cover more urgent cash outflows today. Just make sure you have this properly documented on the balance sheet so there are no questions later. Don’t forget to communicate this plan of action with your lenders.

Reach Out for Help

If you feel uncertain during these times, you’re not alone. Know that you can enlist the help of a specialized business partner to get you through all of this. A business advisor can help guide your business on the right path and help you keep your doors open during this uncertain time.

What could Signature Analytics do for your business?

  • Evaluate your current financial state
  • Forecasting to understand future financing needs
  • Assistance with budgeting
  • Help secure additional financing
  • Negotiate loan terms
  • Strengthen your relationship with the bank

SA can help you understand what kind of changes you need to make today in order to stay ahead of the game. Having a team of strategic thinkers in your corner will help steer your business toward a path of success.

Final Thoughts

Being proactive is essential during uncertainty. Banking relationships will be crucial as you move through the next several months. In order to stay on good terms, you can take a few extra steps in order to strengthen trust with the bank.

Communicate with your bank often and update them on what’s happening in your business. Request extended terms or additional financing now to beat the rush in the coming months. As always, lean on experts when you feel unsure of what to do next.

If you need support getting your financial information in order, contact us right away. We can be your partner in communicating with your bank and other financial relationships ensuring the right information is provided when the bank needs it.

On March 18, 2020, H.R.6201 The Families First Coronavirus Response Act was signed into law to provide economic relief to businesses and individuals during the COVID-19 pandemic. The legislation provides paid sick leave, free coronavirus testing, expands food assistance programs, extends unemployment benefits, and requires employers to provide additional protections for health care workers. The law takes effect on April 2, 2020, and will remain effective until December 31, 2020.

The legislation is broad and includes relief acts in a number of areas including:

  • Supplemental appropriations to the Department of Agriculture (USDA) for nutrition and food assistance programs and appropriations to the Department of Health and Human Services for nutrition programs that assist the elderly
  • Requires the Occupational Safety and Health Administration (OSHA) to issue an emergency temporary standard for infectious disease exposure control plan to protect health care workers
  • Establishes a federal emergency paid leave benefits program to provide payments to employees taking unpaid leave due to the coronavirus outbreak
  • Expands unemployment benefits and provide grants to states for processing and paying claims
  • Requires employers to provide paid sick leave to employees
  • Establishes requirements for providing coronavirus diagnostic testing at no cost to consumers
  • Treats personal respiratory protective devices as covered countermeasures that are eligible for certain liability protections
  • Temporarily increases the Medicaid federal medical assistance percentage

Read the full summary of the Families First Coronavirus Response Act here

The main changes that businesses should be aware of are the federal emergency paid leave benefits program and the requirement for employers to provide paid sick leave to employees.

Emergency Family and Medical Leave Expansion Act (the “FMLA Expansion Act”)

H.R. 6201 expands the existing Family and Medical Leave Act (FMLA) to include job-protected leave for employees that are unable to work due to child’s school or daycare closure due to COVID-19. Employers with less than 500 employees must offer up to 12 weeks of job-protected leave to employees unable to work (or telework) because they must care for a child (under 18 years old) whose school or care provider is closed due to COVID-19 emergency declared by a federal, state, or local authority. Employers can seek reimbursement for the wages paid to employees taking emergency family and medical leave through tax credits applicable to the employer’s portion of Social Security taxes.

Employees must have been working for the company for at least 30 days to be eligible. The first 10 days of leave may be unpaid. After 10 days of unpaid leave, employers are required to provide paid leave of not less than two-thirds of an employee’s regular rate up to $200 per day or $10,000 total. Pay for hourly employees whose schedules vary is calculated using the average number of hours worked for the prior six months, or the “reasonable expectation” of the number of hours when hired if they’ve been with the employer for less than six months. The employer can require the employee to utilize any accrued vacation leave, personal leave, or other medical or sick leave first.

Generally, after the leave period, the employee is eligible to return to the same or equivalent position with their employer. Certain exemptions to this requirement are available for employers with less than 25 employees.
Small businesses with less than 50 employees may be exempted from the leave requirement by the Secretary of Labor if the requirements would jeopardize the viability of the business.

Emergency Paid Sick Leave Act

This requires employers with fewer than 500 employees to provide paid sick leave to employees if they are unable to work (including telework) due to COVID-19. Employers can seek reimbursement for the wages paid to employees taking emergency paid sick leave through tax credits applicable to the employer’s portion of Social Security taxes.

Full-time employees are to receive 80 hours of paid sick leave. Part-time employees are to receive the equivalent of the number of hours they would work, on average, during a two-week period.

The requirement applies to all employees, regardless of their tenure with the employer and paid sick leave time does not carry over into the next year. The emergency paid sick leave is in addition to any other paid sick leave or PTO already offered by the employer and does not require other paid sick leave or PTO to be used first.

Emergency paid sick leave applies to employees who meet one of the following requirements:

  1. The employee is subject to a quarantine or isolation order for COVID-19
  2. A health care provider advised the employee to self-quarantine due to COVID-19
  3. The employee is experiencing symptoms of COVID-19 and seeking medical diagnosis
  4. The employee is caring for an individual who is subject to quarantine or isolation order for COVID-19
  5. The employee is caring for their child whose school has been closed or place of care is unavailable due to COVID-19 precautions
  6. The employee is experiencing any other substantially similar condition (to be defined by the Secretary of Health and Human Services)

For reasons 1 – 3 above, employees will receive paid sick leave at their regular rate, not to exceed $511 per day and $5,110 total.

For reasons 4 – 6 above, employees will receive paid sick leave at two-thirds of their regular rate, not to exceed $200 per day and $2,000 total.

The Secretary of Labor is required to issue guidelines and additional clarification to assist employers in calculating leave benefits by April 2nd. Additionally, employers must post a notice to employees and The Secretary of Labor is required to create a notice by March 25th.

Small businesses with less than 50 employees may be exempted from the leave requirement by the Secretary of Labor if the requirements would jeopardize the viability of the business.

Employer Tax Credits

H.R. 6201 provides for employer tax credits to offset the costs associated with the new paid public health emergency leave and sick leave required for employees. Employers can seek reimbursement for the wages paid to employees for emergency paid leave and emergency paid sick leave through tax credits applicable to the employer’s portion of Social Security taxes. The amount of the paid sick leave credit that is allowed for any calendar quarter cannot exceed the total employer payroll tax obligations on all wages for all employees. The amount over this limitation is refundable to the employer.

Final Thoughts

We recommend that you work with your employment lawyer and tax CPA on the implications applicable to your unique situation. Signature Analytics is here to support you and can provide references to our partner network of legal and tax experts.

What you need to know

Income Tax Filing and Payment Deadline Extended to July 15, 2020

On March 18, 2020 the U.S. Treasury Department and Internal Revenue Service (IRS) issued guidance that will allow most individuals and businesses to delay federal income tax filing and payments due on April 15, 2020, until July 15, 2020, without penalties or interest. This emergency declaration will allow more liquidity for individuals and businesses during the COVID-19 pandemic.

How the guidance applies:

Individuals and other non-corporate tax filers

  • May defer up to $1 million of federal income tax (including self-employment tax) payments due on April 15, 2020, until July 15, 2020, without penalties or interest

Corporate tax filers

  • May defer of up to $10 million of federal income tax payments that would be due on April 15, 2020, until July 15, 2020, without penalties or interest

If you will be receiving a refund, it is in your interest to file as soon as possible to get your refund sooner. The guidance is unclear if the deferment applies to trusts or upcoming quarterly tax payments.

On March 18, 2020 the California Franchise Tax Board (FTB) also announced that it will be postponing the filing and payment deadlines for all individuals and business entities until July 15, 2020. The change in deadline applies to the following California state returns and payments:

  • 2019 tax returns
  • 2019 tax return payments
  • 2020 1st and 2nd quarter estimate payments
  • 2020 LLC taxes and fees
  • 2020 Non-wage withholding payments

Final Thoughts

We recommend that you consult with your tax CPA on how the guidance applies to your unique situation. Signature Analytics is here to support you and can provide references to our partner network of tax experts.

Resources:

View the IRS Notice
View the California FTB Notice

 

“Cash is King.” We hear this phrase time and time again, but why is it so important for small and mid-size businesses? The short answer – if you run out of cash, your business fails. Seems obvious, right? However, what may not be as obvious is that being profitable is not the same thing as being cash flow positive. In fact, many businesses that show profitability within their financial statements have ended up in bankruptcy because the amount of cash coming in does not exceed the amount of cash going out.

As an example, consider a service company that just started with a new customer. In January, the company provides the service and invoices the customer on January 31st. The company recognizes the revenue from that customer in January, but probably does not collect the cash until February or March. Meanwhile the company had to pay its’ employees on January 15th and the 31st. Thus cash outflow exceeded cash inflow in January. When you multiply this scenario by hundreds of customers, or consider a month with significant customer growth, you can see how the company could run into cash flow issues.

If a company cannot balance the cash inflows with the proper cash outflows then their profits on paper or supposed net-income are meaningless. Firms must exercise good cash management otherwise they may not be able to make the investments needed to compete, or might have to pay more to borrow the money they need to function.

What the Experts Say About Cash Management

Several industry leaders and associations have all found that cash flow problems can be one of the leading causes of failure for businesses…

82% of businesses fail due to poor cash flow management / poor understanding of cash flow.
— Jessie Hagen of US Bank

Despite the fact that cash is the lifeblood of a business — the fuel that keeps the engine running — most business owners don’t truly have a handle on their cash flow. Poor cash flow management is causing more business failures today than ever before.
— Philip Campbell, author of Never Run Out of Cash (Grow & Succeed Publishing 2004)

Insufficient capital is one of the main reasons for small business failure, coupled with lack of experience, poor location, poor inventory management and over-investment in fixed assets.
— U.S. Small Business Association (SBA)

A Case Study: Importance of Monitoring & Analyzing Cash Flow

One of our clients, a media company, believed they needed a significant capital infusion to support their growth plans, but were uncertain when and how much capital would be required. So we generated a detailed five year cash flow projection to forecast and identify all the time periods in which the company’s cash balance would become negative.

Analyzing the company’s cash flow projections revealed that they would require additional capital even after reaching profitability which is actually typical for early-stage companies, or companies in a high-growth mode. The projections also revealed that the amount of capital required to remain cash flow positive was 50 percent higher than they had initially anticipated.

Knowing their true capital needs allowed the company to raise the appropriate amount of capital required to support their growth plans and, more importantly, ensured they would not run out of cash.

Read the full case study here.

Monitoring Cash Flow for Your Business

Achieving a positive cash flow does not come by chance. You have to work at it. Companies need to analyze and manage their cash flow to more effectively control the inflow and outflow of cash. The Small Business Association recommends monitoring cash flow on a monthly basis to make sure you have enough cash to cover your obligations in the coming month.

By proactively getting in front of your future cash needs, you can make the right business decisions to solidify your cash position, and establish a foundation for growth.

Read More: 10 Tips to Help Improve Your Company’s Cash Flow

 

We Can Help

The process of creating and managing to an operating cash flow budget is not intuitive or easy for most small and mid-size business owners. If you need assistance managing your company’s cash flows, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

Download our latest e-book:

If you’re not familiar with “what-if” scenario analysis, it’s time you familiarize yourself and jump on board. This type of planning can reveal unanticipated difficulties that can destabilize a project, making it a valuable analytical tool.

By helping you prepare for such adversities, financial scenario planning gives you a proactive edge on the situation. What-if analysis might seem like a daunting process, but it will help you make decisions to help your company thrive – or become more prepared – especially during more undesirable times.

Why You Need To Plan For What Ifs

What-if scenario planning can give you a distinct edge over the competition because your company will be prepared for a quick response and viable solution for problematic situations.

Once you incorporate scenario planning into your operations, you will have strategies on hand for virtually any situation.

For example, let’s say you want to see how a supply delivery at a later date will affect your project costs. You create a scenario around this idea and add in the appropriate circumstances that could impact your business, whether positive or negative. Running through the scenario will show you the potential outcome, and help you determine the best course of action.

Financial scenario planning is also a vital part of the business decision-making process. It helps you figure out the best and worst-case scenarios so you can anticipate possible profits or losses.

eGuide: What Business Should Expect From Their Accounting Department

What are the Three Stages of Scenario Planning?

When you’re planning for various financial scenarios, you will generate several probable future contexts for your company, the industry you are in, and also the economy. These possibilities will include individual scenarios, like variables such as operating costs, product pricing, inflation, customer metrics, and interest rates.

Typically, you will begin with three separate scenarios:

  • Base case scenario: You can use your data from the previous year in this situation, as this is a good predictor for the next twelve months. If you saw growth within your company during the last year, say 10%, you can assume the same growth rate will follow in the next year.
  • Best-case scenario: The best-case is to think outside the box and try to imagine a situation in which your sales projections turn out as you hope over the next year. For example, holding onto your current customers, adding new ones, or making an acquisition. Although you are creating a best-case scenario, the data you use should still be realistic. For example, if your company is experiencing an 85% monthly retention rate, you could increase it to 90% for the sake of this scenario.
  • Worst-case scenario: The worst-case will prepare you for potential problems. It can help you avoid issues or at least prepare for them by creating an action plan.

Read More: How to Effectively Communicate Your Company’s Financials with Internal Stakeholders

How to do Financial Scenario Planning

It’s crucial that you build scenarios into your company’s financial model so you have a full understanding of how different variables can impact your company. Here are some steps you can follow to get started with financial scenario planning:

  • Make a list of all the potential occurrences you want to develop scenarios for
  • Flesh out the details for each scenario
  • Make sure to include the three stages for each scenario: average case, best case, and worst case
  • Make sure you are consistent throughout the planning of each scenario

What are the Benefits of Scenario Planning?

Analyzing your company and predicting its future is a risky business. Financial scenario planning can give you the edge on different possibilities and you and your company can benefit in many ways, including:

  • Planning for the future: Scenario planning allows you to give investors a preview of the potential returns and risks involved in future investments. Your goal is to increase your company’s revenue, and the best way to do so is by using up-to-date calculations.
  • Avoiding risks and failures: Financial scenario planning can help you avoid making poor investment decisions. As you are taking the best and worst possible case scenarios into account, you can make more informed decisions.
  • Keeping you proactive: By being proactive and staying on your toes, you can minimize potential losses from factors beyond your control. Creating worst-case scenarios allows you to assess possible damage and avoid these circumstances, or at least prepare for them.
  • Enabling you to project investment returns or losses: Financial scenario planning gives you the tools to calculate potential investment gains and losses and provides you with measurable data. You can use this data to maximize the outcome.

Read More: Creating the Perfect Annual Budget for Your Business

Who Can Help With Financial Scenario Planning

A CFO is an ideal person to help with financial scenario planning. They can play an important part in this process because they are a successful executive who is an expert in strategic financial management. As an expert, they are responsible for managing short-term assets and available resources and developing strategies to leverage these resources.

Furthermore, a CFO should be able to maintain the company’s long-term financial health and profitability. A good CFO will analyze the cash flow, income statements, and balance sheet to monitor the company’s well-being while simultaneously making the most of the assets.

To do this, they need to have certain information at hand. Financial scenario planning can help them acquire this information by answering the following questions:

  • How can the company combine short and long-term assets to maximize profitability?
  • How can the company best finance upcoming projects?
  • How can the company maintain a healthy balance between debt and equity?
  • How can older assets generate future revenue?

What are the Benefits of a Fractional CFO

If you’re running a small- to medium-sized company, you may believe hiring a CFO is out of the realm of your budget. However, this is not the case. If you hire a fractional CFO, you can reap all the benefits of their financial expertise without it costing a small fortune. Here are a few of the benefits:

  • You’ll save money because you won’t have to pay a salary or benefits
  • You’ll save time because you won’t have to advertise, interview, or train
  • You can ensure that you have a CFO who is qualified and experienced

No matter how effective your company is, it won’t be able to maintain steady growth phases if future projections and developed strategies are not made for when issues arise. Your business potential relies on your ability to evaluate your company honestly daily. This ability includes the evaluation for ways to improve efficiency, minimize waste, boost performance, and develop solutions for how your company can succeed through positive and negative economic conditions.

eGuide: What Business Should Expect From Their Accounting Department

Hiring an outsourced CFO can make a big difference to your company when it comes to these endeavors and securing a financial plan to ensure you’re making the right business decisions.

Having an experienced financial business advisor to run through scenario planning and caution you of the possible outcomes can make the difference between a successful organization and a failing business.

If you are considering hiring a fractional CFO, contact Signature Analytics today. We can provide you with qualified and experienced CFOs, regardless of your industry.


Do you know your numbers?

The role of the chief financial officer (CFO) role has changed significantly over time.

Traditionally, a CFO’s role was comprised of reporting, controlling the accounting department, preparing for an audit, supervising capital structure, and overseeing all elements of compliance.

Today not only does the CFO handle all of those responsibilities, but the role has evolved to include duties such as capital allocation and portfolio management, taking the lead in relations with company investors, and being in charge of performance management.

While the role of a finance and accounting leader has many responsibilities, we’ll look at two broad categories: “operational CFO” and “strategic CFO.”  Having strategic financial insights is essential, as all business owners already know. First, let’s define these roles, then, let’s address what a business owner can do when a C-Suite hire is not within reach.

What is an Operational Chief Financial Officer?

An operational CFO role is much more than a number cruncher. This person develops a much more holistic understanding of how the company operates, rather than merely focusing on cash flow.

Why? Because an operational CFO typically has a deeper understanding of company processes and systems, which gives them a stronger grasp on what the cash flow figures mean. They also have a firm grasp on operational risk, reporting, and other accounting functions.

These financial management skills make a significant difference in the long-term success of the company.

For example, imagine your company sold suitcases. A traditional CFO could tell you the exact cost to manufacture each suitcase, and how much profit you’d make each time you sell one.

An operational CFO could give you more context into exactly what these figures mean for your business. They might check for inefficiencies in the way the suitcases are manufactured and look for expenses that could be reduced. In the long run, this added layer of analysis would save your suitcase company a lot of money.

What is a Strategic Chief Financial Officer?

Like an operational CFO, the strategic CFO will understand the financial operations of your business inside and out. Beyond this, strategic and operational CFOs have different objectives. Where an operational CFO is concerned with past and present financial analysis, a strategic CFO must be forward-thinking with their strategy, providing valuable insights that can initiate positive changes within the company.

For example, imagine you want to increase revenue for your suitcase company. The strategic CFO will play a major role in how you grow your company. They will work closely with the Chief Executive Officer (CEO) to develop a goal for where the company should be in the next three, five, and even ten years. The executives will work together on a plan to reach these goals, perhaps by launching a new product or redesigning its flagship suitcase.

How Are Operational and Strategic CFOs Different?

Although an operational and a strategic CFO do have some shared responsibilities, there are some differences:

An operational CFO can help you to:

  • Fully understand the operational functions of the company
  • Long-term financial planning
  • Eliminate unnecessary spending
  • Increase ROI
  • Identify and improve inefficient operations
  • Understand the full financial functioning of your company

A strategic CFO can help you to:

  • Understand your company’s profit trends and how these will impact the future of the business
  • Determine areas where your business should expand or trim for future growth
  • Provide information and analysis regarding all strategic decisions
  • Assess the benefits and disadvantages of alternative models and distribution channels
  • Analyze areas for further expansion
  • Develop predictions for the company’s future growth

When Do You Need to Hire an Operational CFO?

The most obvious reason to hire an operational CFO is if you need someone to help you assess your company’s efficiency and make changes to improve production and save money.

An operational CFO will provide you with business intelligence, which can help you mitigate financial risks. They will also help you if you are dealing with a merger or acquisition.

Dealing with liquidation, or equity and debt negotiations are two other scenarios where an operational CFO is the right choice.

When Do You Need to Hire a Strategic CFO?

The most obvious reason to hire a strategic CFO is that they will be able to project your company’s future, provide a strategy for the CEO to run with, and focus on improving profitability.

Your company will also benefit from strategic CFO services because, among their other responsibilities, they will provide stakeholders with assurance that your business finance is in safe hands.

This level of trust means existing stakeholders will want to invest more money into the company, and it will also help to acquire new investors.

What Can You Do If You Are Not Ready for A Full-Time CFO?

It’s clear to see the advantages of hiring an operational or strategic CFO, but if you are running a small to medium-sized business, you may feel an executive is beyond your budget. You may not want to give away equity or, you may simply already know that outsourcing is a great way to scale a business.

At Signature Analytics, our Business Advisory CFO services provide the boots-on-the-ground operational CFO service with the forward-thinking strategic CFO guidance all rolled into one. Working with us as a fractional resource has many benefits, including:

  • Avoiding the expense of advertising, interviewing, vetting, and training a new staff member
  • A faster, more efficient hiring timetable
  • The knowledge that you are working with a fully qualified, experienced finance professional
  • Always having Business Advisory CFO services available, even in August when most in-house C-Suite professionals are on vacation

High-level CFO insights are essential to growth, scalability, profitability and even succession and exit planning.  If your business is ready to take planning and finance to the next level, contact us today to discuss how our expert team can help your company succeed.

Whatever industry you’re in, whatever the size of your organization, the Chief Financial Officer plays a vital role in your company’s success. If you run a small company, you may not have the workload or funds to support a full-time financial executive. If this sounds familiar, a part-time CFO could be a viable solution to reap the benefits of a financial executive without breaking the bank.

Read on to explore why your company needs a part-time CFO, what this fractional executive does, and how to hire for this critical role.

This is Why Your Company Needs a Part-Time CFO

In many small and growing companies, an accountant or maybe even the owner picks up CFO duties. While the owner may know the business inside and out, they often don’t have a lot of experience managing finance and accounting or don’t enjoy dealing with it. In many cases, accountants don’t have the proper training to provide strategy and forecasts the way a CFO does.

A CFO measures the success of your business in dollars and cents to help your company grow as quickly and as profitably as possible, while providing these key benefits:

  • You’ll have a personal advisor: Your CFO will always be there to guide your financial decisions. They come with a wealth of knowledge and will have a grasp on the ins and outs of your business financially.
  • You’ll have help raising capital: Your CFO will play a critical role in managing your business funds and equity. They will help you to raise enough capital to expand and ensure that your revenue is collected on time.
  • You’ll have an expert in financial data: Currently, data is one of the most significant driving forces behind a company. The expectation is that a CFO with experience will know how to analyze Big Data, pair it down, and report the most important facts and figures to the CEO.
  • You’ll have more time to do what you do best: As your CFO brings in-depth knowledge of all things financing and capital, they can manage relationships with partners, shareholders, lenders, and investors. This help will open up your calendar, giving you more time to concentrate on running your company.

Which Kind of Background Should I Look for in a CFO Candidate?

As you’re searching for the right CFO, it will be imperative to consider your company’s short-term and long-term goals. Your goals will help shape the qualifications you are looking for in your next finance leader.

While all CFOs have qualifications and experience in business finance, each has their area of expertise that can serve as a bonus to your company.

The KPI Wizard: This type of CFO loves metrics. They can step into your business and quickly see how you are scoring on performance. If you are not up to par, they will be very swift to tell you where and how to make improvements.

The Numbers Champion: This type of CFO is a leader that feels comfortable wearing many hats. Within the finance department, their role may include handling treasury, controllership, financial planning, and auditing. They won’t let a single figure slip by without notice, and they will keep you informed of all significant financial occurrences.

The Strategy Ace: This type of CFO usually has experience working on other aspects of a company such as general management, marketing, and operations. These experiences give CFOs the ability to effectively communicate with practically anyone on the team to ensure accurate procedures are followed. The results are streamlined business strategies and employees who are prepared to handle any issue that may arise.

The Development Expert: This is a new breed of CFO. Chief financial officers who are experts in growth and development usually have several years of experience dealing with venture capitalism, private equity, and mergers and acquisitions. They will help you grow your business in ways you may not have thought of yourself.

Read More: The CFO of the Future: Why You Need One

These are the Reasons Why Your Company Needs a Part-Time CFO

Small to middle-market companies who range in $40 million in annual revenue, and who may have a small accounting team, may not need an in-house, full-time CFO. Of course, this is dependant upon a variety of factors. However, they likely still need the advice of a financial leader, especially when it comes to the following:

  • Improving your financial awareness: Accounting departments rarely have the knowledge and experience of a CFO. They cannot provide the same level of financial forecasting or strategy development and implementation as a CFO.
  • Reaching solutions fast: While it’s true that you know the business best, a CFO brings a fresh perspective. They can help find solutions to recurring problems and work with you directly to streamline all the financial aspects of the business.
  • Creating cash flow forecasts: A thorough understanding of economics is essential to anyone in the role of CFO. This knowledge enables them to develop accurate cash flow forecasts based on the company’s finances and its standing within the industry.
  • Staying aligned with your financial department: A qualified CFO has a firm understanding of the latest financial software solutions and cloud-based tools. Knowledge such as this provides the company with ways to more easily access important business information.

Read More: Signs Your Company Needs to Hire a CFO

What You Get with a Part-Time CFO

A CFO’s responsibilities are broad and will vary somewhat depending on your company’s industry and size. Regardless of sector, there are a few essential functions they can use to help any company:

  • Providing a thorough understanding of your company’s financial situation
  • Helping you make necessary financial decisions based on that knowledge
  • Taking steps to reduce financial risks now and in the future
  • Forecasting budgets and developing strategies to grow your business
  • Implementing an economic growth plan
  • Managing or supporting multiple departments:
    • Accounting: tracking cash flow and financial planning
    • HR: managing payroll and flexible benefits
    • Legal: overseeing taxation issues
    • Treasury: deciding how to invest the company’s money
  • Monitoring different transactions:
    • Benefit plans: optimizing price and value
    • Acquisitions: managing a merger or acquisition strategy
    • Insurance: making sure that the company has adequate protection

When is it Time to Engage a Part-Time CFO?

There are a few significant signs that it might be time to consider a part-time CFO for your company. Some of these include:

  • Periods of rapid growth: A CFO can help scale your business by focusing on capital, liquidity, and free cash flow. Their expertise can ensure your rapid growth is fiscally sound and sustainable in the long-term.
  • New product development: You can benefit from a CFO’s market assessment skills and their ability to work with marketing and sales partners. Their analytical ability will help you get the best return on investment when it comes time to launch your new product.
  • You want to boost profitability: In this instance, a CFO can understand the cost of various projects, track the right metrics, and use data to streamline the company. When the CFO understands the bigger picture, they can set your company on the right track towards long-term growth. They can even get you back on track if your business has become stagnant after several years of maintaining the status quo with less successful results.

Filling the CFO seat can be beneficial for numerous reasons, including quantifying and reducing risk to the organization, lowering costs to increase profitability and cash flow, and ensuring your long-term company strategy is executed and results realized.

By bringing on a part-time CFO, business owners and managers can realize these benefits at an earlier stage and save on costs, rather than waiting for a full-time CFO role to develop.

If your business could benefit from a part-time CFO, contact Signature Analytics. We are happy to discuss our outsourced CFO services. We can set up a consultation to learn about your specific business needs and can discuss the best, outsourced CFO services for you.

You’ve heard it before, this fable about the grasshopper and the ant: the grasshopper who spends his pre-winter months lounging in the sun, throwing back Tecates and enjoying the sun on his tiny, green face as he watches the ant, hard at work, collecting crumbs of food for the frigid season ahead.

As winter rolls around and snow blankets the outside world, the grasshopper, who had been enjoying his life living in the moment, realizes that food has become impossible to find. Unable to feed himself, the grasshopper dies. And the ant? He spends the winter lounging on his LoveSac and binging on Netflix (presumably), surviving and thriving on the feast he proactively prepared for and collected during those warmer months.

What do the grasshopper and the ant have to do with how you run your business? Everything- especially if you’re the grasshopper.

Successful businesses requires proactive cash flow

The difference between a successful business and a struggling one is that successful companies are proactive when it comes to their cash flow. In fact, 2 of the top 5 reasons small businesses fail is because they either experience cash flow problems or they run out of cash.

While cash flow may sound like a fundamental concept, many business owners continue winging it week after week. Taking a laissez-faire approach to your cash flow is like planning a wedding without taking a headcount. How do you know how much food to order or what size venue to book? Do you have enough money to cover that open bar?

Starting off every Monday morning worrying about what you need to do that week in order to make payroll is not ideal and is a bad idea. Think about this: if your business was going to be short on cash, would you rather know a month before your bills are due or the week that your bills are due? Consistently being proactive and analyzing cash flow statements eliminates stress and anxiety and allows a business owner to stay on top of accounts.

A company’s performance is tied to its cash flow: if you have no insight into how much cash is flowing in and out of the business, how do you know if you should pop that bottle of Dom or are standing on the stern of the Titanic? Proactive cash flow management ensures your business forecasts the timing of when cash is to paid and received and reduces the risk of running out of cash.

Becoming proactive with cash flow:

Being proactive in your cash flow helps you plan for the future rather than having to continuously be reactive week over week. Business owners with proactive cash flow management can see 4, 8, or 13 weeks out into the future. If there are any periods where cash may be short, they will have the visibility, and more importantly, time to plan for it.

Taking a proactive approach to your cash flow starts with knowing what the major expense components of your business are including payroll and benefits, R&D, marketing, COGS, and G&A (general and administrative) expenses. Then take a look at your bank balance and ask yourself the following questions:

  • How much money is in the bank?
  • Are there any outstanding checks that haven’t cleared?
  • Is there any cash that is forecast to come in over the next week (are there any ARs being collected)?
  • How much in AP (accounts payable) is due in the next week?

If your ending cash balance is negative, you’re out of money.

Understanding your cash flow is critical to your business. With a forecasting tool in place, you can help your business plan for future growth, understand the ebbs and flows of your business cycle, and understand how long current cash reserves can last.Signature Analytics will help guide your company through the cash flow process. If your business need assistance creating, improving, or managing your cash flow, contact us today.