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Overview

Managing cash flow has always been challenging. In this unprecedented current financial crisis, with the root cause being a health pandemic, planning for the uncertain future is even more difficult. With many companies seeing significantly diminished business activity due to government mandates to stay at home, budgeting and planning becomes extremely important.

Questions Business Owners Are Pondering

• If cash flow comes to a complete halt in the weeks ahead, which expenses should I cut? Which staff should be furloughed, laid off, or retained?
• How should recently passed government disaster and stimulus-backed loans play into my business decisions?
• If my business is still able to provide products or services, to what extent can I rely on my customers’ ability to pay for these services? Should I offer new terms and methods of payment?
• What happens when business returns to normal and consumer demand causes a surge in business? Who will be left in my employ to meet that demand if I lay off staff?

Items to Consider, Business Decisions to Be Made

• Prepare cash flow projections using various revenue scenarios, e.g., decreased revenue of 50%, 75%, 90%. Cash flow projections, at a minimum, should include the following:
  • Projected collections based on decreased revenues, as well as collection of current A/R.
  • Projected variable expenses for purchasing and direct staff costs.
  • Projected fixed monthly expenses (rent, utilities). This is the monthly “nut” you need to cover.

• Using the various cash flow scenarios described above, start developing a strategy to address key business decisions and to understand what their financial impact will be on the business:
  • Determine which specific staff should be furloughed or laid off (and when) and the associated funds it will make available to help sustain the business.
  • Decide which fixed expenses you can defer.
  • Consider offering discounts to customers on outstanding balances to generate cash flow.
  • Consider freezing 401(k) and/or other pension plans (this is now an option).
  • Decide on the best sources to fund cash flow shortfalls:
    • Available business lines of credit
    • SBA Disaster Loans
    • Small business loans available through stimulus packages
    • Personal loans from business owners
  • If long-term SBA Disaster loan financing is required, understand the future cash flow impact when debt repayment commences.
  • For employee-related staffing issues, consider expanded unemployment benefits available under certain stimulus packages as an alternative to, or in combination with, retaining and/or furloughing or laying off staff. Remember to consult with a labor attorney or a qualified HR advisor.

Other Thoughts

• Update cash flow projections regularly.
• Update and monitor A/R on a frequent basis.
• Constantly manage A/P and update projections accordingly.
• Maintain communication with vendors, especially those deemed essential to your business’ operations.
• Recognize that the various strategies to manage cash flow are not mutually exclusive. For example, temporary financing through the SBA Disaster Loan program may be needed even though these loans may ultimately be re-financed with government-backed stimulus loans.

For additional assistance, please contact your Gettry Marcus advisor who will work with our COVID-19 Crisis Advisory Task Force to provide additional assistance regarding cash flow planning and the application process for both SBA Disaster and other government-backed stimulus loans. If you do not have a Gettry Marcus advisor please contact Paul Bella or Lee Ferber, authors of this article.