The disruption seen in 2020 has been unprecedented, especially if you are a business owner. It’s challenging enough to keep cash flow steady on a regular day, but business owners must now factor in financial losses endured from the relentless wave of current events.
One study showed that companies with fewer than 500 employees have less than a month’s worth of cash reserves, and many smaller Main Street businesses can get by on negative cash flow for just a few weeks. With statewide stay-at-home orders first announced in March, businesses have had to endure little-to-no income for almost three months.
To ensure that businesses keep their doors open and retain their employees, financial initiatives on federal and state levels have been implemented. From Paycheck Protection Program (PPP) and Economic Injury Disaster loans, to state-specific grants, applications for financial assistance flooded systems nationwide.
“I’m an accounting professional, and we have a lot of clients in various financial situations, but this—this is something I’ve never seen before,” says Rayanne Buchianico, owner of ABC Solutions, LLC, an accounting firm in Clearwater, Florida. Below, Buchianico and other experts share their suggestions for businesses to continue operating on a tight cash flow and budget.
“There is no one-size-fits-all solution,” Buchianico says. “But there are general guidelines and considerations businesses can follow to examine and improve their cash flow.”
“How often do you check your list of expenses and subscriptions? That’s the first place to start,” says Don Rose, business advisor for Capital Region SBDC. “Run a quick profit and loss (P&L) report showing your monthly income and expenses for each over the last 12 months. Go across each line item and decide how much you can reduce that line item expense, and what’s the bare bones amount you can get by with. Make those changes in the report, and that will become your budget for the next 12 months.”
Expenses that may have made sense in the beginning of the year may no longer be relevant after the pandemic. “Understanding what the end goal is with your company and looking at the numbers to see if you can get there is ultimately what you’re trying to figure out here,” continues Rose.
“How often do you check your list of expenses and subscriptions? That’s the first place to start… Run a quick profit and loss report.”
While it may seem obvious, accountants like Buchianico and Rose both agree that too many businesses don’t go over expenses in enough detail. “Just the other day, I was having a video conferencing call with a client,” recalls Buchianico, “and we were using WebEx while going over their financials, when they realized that they didn’t need to be paying $25 a month for WebEx when there were plenty of other platforms like Zoom and Google Hangouts that do video conferencing for free.”
Both accountants urge business owners to drill down and see who they are paying money to every month, and then to make sure that full value is being utilized for those services. SCORE, a nonprofit organization working alongside the SBA has produced a worksheet that allows businesses to better organize and calculate their cash flow.
Once that budget has been established, the next step is to negotiate with suppliers for discounts. “I mean, if their choice is between losing a customer because their customer goes out of business versus selling at a discounted rate, as long as they’re making some margin, they’re better off offering a discounted sale than no sales at all,” says Rose.
For this, Rose recommends doing extensive preliminary research on market prices. “You may have been using the same supplier for years now, and I’m sure over those years their rates have fluctuated,” he says. “If they’re charging you more today, be sure to check those numbers and compare it against market prices. It’s one thing if their rates have gone up because of inflation, but it’s another thing if you’ve been overpaying.”
Having back-up contacts and businesses for your supply chain could make or break your business. “If this epidemic has shown us anything, it’s how vulnerable our businesses are to supply chain disruptions,” says Rose. “If your supplier is struggling to make ends meet, ask how you can help and see if you’re able to extend that help to them, whether it’s in the form of an accelerated payable or waiting longer in delivery times.”
Negotiating with landlords during the pandemic has also been seen nationwide. “Over the next few months, there’s going to be minimal demand for retail space,” says Rose. “Landlords have an incentive to negotiate because they’d rather have reduced rent than no rental income at all.” In Los Angeles, Mayor Eric Garcetti ordered a temporary moratorium on commercial evictions, effective March 4 to June 30, in an effort to ease the financial pressure of business owners.
When it comes to employees, Rose suggests offering an alternative to eliminating their positions: “Try offering them part-time or job-sharing arrangements so that you don’t have to lay off as many people, and hopefully as the economy improves, they can return as full-time employees.” Another financial option is to apply for a PPP loan, which ensures that employees get paid and is also forgivable.
“So, it’s estimated that most companies can expect a 33 percent decrease in their revenue in 2020 from 2019,” says Buchianico. “If 2019 was the best business year in your life, that’s great. Now take 67 percent of that number and that’s probably what your 2020 is going to look like.”
While some revenue streams may have dried up, Buchianico urges business owners to get innovative and forge new relationships. “You may not have exhausted all of the platforms available to find and target new potential customers,” says Buchianico. She recommends using spaces like LinkedIn for B2B audiences and other social media sites like Facebook and Instagram for more B2C businesses. E-commerce spaces such as eBay and Etsy are also easy to set up and can be an additional space for exposure and sales.
“I’ve been saying this for the last few years, but people look for everything online before they venture outside, especially now,” Buchianico adds. “So, this is your opportunity.”
Communicating with existing customers regularly is key to staying on their radar. “Call them on a weekly basis and check in, see how you can help them,” she says. While financial assistance may be harder to do, staying relevant in the community and finding ways to proactively help customers will make a lasting impact. Buchianico recommends looking at the initial contract and seeing if there’s anything that can be adjusted to still help the customer without impacting the bottom line. “They will remember your acts of kindness once everything lifts and things reopen,” she says.
“Now that you have calculated a budget, ask yourself what is absolutely necessary for the short term and how it will impact your cash flow forecast,” says Rose. Capital investment plans that were made pre-pandemic may have to be placed on hold as part of a longer-term strategy. Revisiting business goals is essentially revisiting a list of priorities in order for the business to overcome the current crisis. Performing a SWOT analysis and restructuring your business strategy framework are essential.
“If you’re a specialist in the industry, try not to deviate too much from that core,” says Buchianico. “Now isn’t the time to get outside your comfort zone.”
With potential shortages caused by supply chain disruptions and lower income margins, balancing the demand for inventory and finding areas to cut inventory are difficult. Having a stable supply chain, detailed demand planning, lead-time compression and safety stock are all ways to ensure that goods and services are still available without incurring financial loss.
“Have some buffer inventory for times of emergency, especially for non-perishable items,” says Rose. “Work with vendors and suppliers to go over scenarios, and come to a new agreement and understanding.”
Business debt restructuring is a process that involves a reduction or a negotiation on overdue debt for a business. Debt restructuring is not highly recommended as it may severely affect credit scores, but it is available for businesses to restore liquidity. Debt consolidation has a less negative effect overall, and businesses considering any form of debt restructuring should consult with a financial advisor and bankruptcy attorney first.
“This is definitely not something we do from time to time,” says Scott Rakowski, director of NorCal SBDC Finance Center in Sacramento. “You wouldn’t normally call your credit card companies, loan officers or try to negotiate lines of credit. But sometimes it’s worth asking how you can refinance to help with cash flow.” To be clear, debt restructuring will take significant planning to demonstrate to loan officers how you intend to get back on track.
Rakowski recommends looking at different lines of credit to continue funding operations, as it typically offers lower interest rates over an extended period. Regarding the use of business credit cards, he says, “the only way this will affect your credit is upon utilization. Say the going rate for utilization is around 45 percent. If you have a credit card that has a $10,000 limit and you owe over $4,000 on that one card, it could affect your credit score.”
He cautions people on opening multiple credit cards. “It’s better to charge up one credit card fully and leave the others uncharged to lower the impact on your credit score,” Rakowski says.