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

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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.

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