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Your business finances: A 5-step action plan to assess, regroup and survive COVID-19

business owners discussing finances

There’s no doubt the coronavirus (COVID-19) crisis has taken a toll on business finances: 75% of small businesses report being negatively impacted by the pandemic, local business closures have increased by 200% and the U.S. economy shrank by 4.8% in the first quarter of 2020. Though state governments are beginning to lift stay-at-home mandates, the road to recovery is rife with challenges for businesses that find themselves in financial disarray.

That doesn’t mean the outlook is bleak. Companies that take stock of their finances and craft strategic plans to mitigate the outbreak’s impact have an opportunity to regain their footing and even thrive. To that end, the following details five action steps businesses can take to assess their finances, regroup, maintain operations and spur revenue growth post-pandemic.

1. Take stock of current assets and liabilities

Businesses need to know where they stand so they can project where they’re headed – and chart a new course if necessary. Thus, it’s a good idea for companies to make a list of their current assets and liabilities.

Assets can be fixed or liquid, tangible or intangible. Listing all assets helps businesses determine how much cash they have immediate access to and identify which assets could be converted to cash if needed. 

Examples of liquid assets include: 

  • Cash
  • Stocks
  • Bonds
  • Cash equivalents
  • Certificates of Deposit

Examples of fixed assets include: 

  • Real estate
  • Equipment and machinery
  • Furniture
  • Vehicles

Examples of business liabilities include: 

  • Accounts payable
  • Notes payable
  • Wages payable
  • Interest payable
  • Income, sales and payroll taxes payable
  • Unearned revenue (such as from customer deposits)

Businesses should be sure to include any new liabilities imposed by the coronavirus; for example, PPP and EIDL loan repayments. Now is also a good time for companies to compare their current assets and liabilities compared to the previous year as well as determine exactly how much revenue they’ve lost due to the pandemic.

Armed with this information, companies can begin to construct forecasts and make strategic decisions about overhead, marketing, when to bring employees back and whether to limit operations during recovery. 

2. Project cash flow

Accurately projecting cash flow isn’t just a sound business practice; it’s a critical step to business survival post-pandemic. Companies need to forecast sales and costs over the next several months – even up to a year or more – to determine whether they have enough cash to maintain operations, pay employees, launch marketing campaigns, pay overhead and liabilities, and still yield profits. 

Though it might be difficult to predict sales figures and revenue at this time, businesses can rely on current activity and historical data to arrive at calculated estimates. It’s a good idea to plan for multiple scenarios; for example, how will cash flow look at 25% of typical revenues, at 50% and at 75%. That way, companies can set performance thresholds required to meet their obligations, track those benchmarks and adjust if needed. 

Cash flow projections can help businesses:

Identify when to bring their workforces back, and at what levels

Companies need employees to maintain operations, but they must also pay those employees. That can be difficult after an absence of revenue, especially for businesses that did not have large cash reserves prior to the pandemic. With solid forecasts, companies can plan to bring employees back in phases, thereby limiting overhead while enabling businesses to recover.

That said, it’s important to factor any stimulus money – and its repayment – into cash flow projections, including rules for how the money must be spent. For example, 75% of forgivable PPP money must be spent on payroll. 

Allocate marketing resources

Marketing is essential to business success. Though many companies might be tempted to reduce marketing costs during recovery, now is the time to leverage the best marketing channels to invite customers back. Accurate cash flow projections coupled with historical data can help businesses identify where to allocate marketing spend to yield the greatest ROI. 

Maintain operations and profitability

Cash flow projections allow businesses to anticipate future costs: overhead, liabilities and other expenses. That, along with sales forecasts, can help companies predict whether they’ll be able to maintain operations or whether they’ll need to make additional adjustments to stay in the black. A conservative approach is best, and small businesses that have little experience with cash flow projections might decide now is the time to partner with a professional accounting service or seek free counseling through the Small Business Administration’s small business development centers

3. Cut costs to avoid shortages

As mentioned, cash flow projections help businesses determine how much money they’ll have to pay expenses – and what’s left over for profit – week by week, month by month. If a business projects a shortage, it might be time to cut costs to avoid running out of cash: the death knell for businesses. 

Here are some ways businesses might be able to reduce costs and still maintain operations during recovery: 

Scale back payroll

Rather than bring the entire workforce back at once, you can bring employees back in phases based on revenue. Other ideas include starting some employees out with part-time work, allowing employees to work remotely or temporarily transitioning to a three- or four-day work week. 

Reduce or suspend benefits

No one wants to cut employee healthcare or retirement benefits, but there are other benefits many businesses can reduce, suspend or eliminate. They include:

  • Dental and vision insurance
  • Life insurance
  • Paid time off
  • Paid professional development/ongoing education
  • Employee lunches
  • Gym memberships
  • Student loan repayments
  • Childcare reimbursement
  • Transportation reimbursement

Eliminate unneeded space

Many companies have transitioned to delivery services, curbside pickup and ecommerce solutions during the pandemic. Some of those changes might be permanent, rendering some real estate unnecessary. That presents an opportunity for companies to change locations or even sell unneeded property to both reduce expenses and bolster cash assets. If eliminating space isn’t an option, now is a good time to negotiate new payment terms with landlords and banks. 

Liquidate unnecessary assets

In addition to real estate, businesses can sell unneeded vehicles, equipment, machinery and other assets to convert them into liquid cash that can be injected into the budget – or simply kept as a safeguard during uncertain times. This is also a good time for businesses to take stock of their inventory and liquidate surplus. 

Negotiate with vendors

When it comes to vendors and suppliers, everything is negotiable, from pricing to payment terms. Companies would do well to remember that these businesses must remain profitable, too, so while they can’t go without payment, they recognize that renegotiating terms will likely be necessary to secure their own futures. 

Woman reviewing business finances

Reduce variable costs

Variable costs such as sales commissions, production materials, packaging and shipping fees can be reevaluated and renegotiated. Companies might need to put a temporary cap on commissions, for example, or adjust the commission rate. Materials and packaging can be sourced elsewhere, or pricing can be negotiated. Businesses can explore opportunities to save money with alternative shipping providers or negotiate better rates. 

Focus marketing efforts

Though it’s never a good idea to cease marketing efforts, it benefits businesses to identify which channels yield the greatest ROI and allocate their marketing budgets accordingly. Marketing experiments, testing and other initiatives can be suspended while businesses grow via proven marketing efforts

Outsource services

Companies can outsource payroll and HR services, accounting, marketing, sales and a host of other professional services to third-party companies, contractors and freelancers to save money. Doing so can reduce payroll expenses incurred through taxes and benefits as well as expenses that result from having employees on-site: equipment and utilities, for example.

Eliminate luxuries

Businesses should take stock of all expenses and make two lists: which costs are necessary, and which could be considered luxuries. Then, they can cut the luxuries. For example, many small businesses probably do not need water coolers or to pay for refill services. 

Reduce or eliminate business travel

Business travel can represent enormous costs for businesses, but the pandemic has proven that companies can maintain continuity without it. The business world has embraced video conferencing and other collaboration tools, which come at a much more affordable price. 

4. Seek financial assistance

Given nearly two months of reduced and lost income, even companies that aggressively cut costs could be at risk of going under. Thus, it’s a good idea for businesses to explore financial assistance options that can hep them weather the storm, serve as buffers if forecasts are inaccurate and, ultimately, save their companies. 

Here are some places businesses can seek financial assistance: 

Federal/SBA stimulus programs

By now, most companies are aware of federal stimulus components such as the Paycheck Protection Program, EIDL loan and advance, SBA Express Bridge Loan and SBA Debt Relief. Businesses should stay abreast of new developments, including when new funds are available, application processes and public sentiment – they certainly want to avoid becoming another Shake Shack or Ruth’s Chris Steak House, companies that returned millions of dollars in response to public outcry that questioned why they accepted money that was intended for smaller businesses. 

The Main Street Lending Program is another option for businesses that were in good financial standing before the pandemic. A Federal Reserve initiative, the program is intended to help small and medium-sized businesses gain access to loans. 

State, regional and local assistance

Businesses should also familiarize themselves with state, regional and local financial assistance programs. These initiatives do not get the media coverage that the PPP and EIDL loans receive, but they’re viable options for businesses that need additional funds. The U.S. Chamber Foundation maintains a list of small business support by state on its website. 

In addition, companies can inquire with their local and regional Chambers of Commerce and economic development departments to learn more about financial assistance opportunities closer to home. 

Corporate and nonprofit grants

Salesforce instituted Salesforce Care Small Business Grants. Facebook launched a small business grants program. Verizon established a small business recovery fund. The James Beard Foundation started a food and beverage industry relief fund. Businesses would be wise to explore grant opportunities available through these and other corporations, nonprofits and trade associations. Additional resources can be found on the U.S. Chamber Foundation website and Grant Space, among other websites. 

Crowdfunding

Locally owned and operated small businesses, artists, performers, and other small entities might be able to find financial assistance via grassroots fundraising campaigns. This is especially true for companies that have large social followings and can get the word out to a dedicated, passionate customer base that earnestly wants them to succeed. Campaigns can be started via crowdfunding sites such as GoFundMe.

5. Prepare for another wave

Once businesses regain control over their finances and establish a path to full operability, they need to plan for the next COVID-19 outbreak. Indeed, experts predict a second wave of the coronavirus will strike later this year; and if business closures and stay-at-home mandates are reinstituted, it could be the final death knell for businesses that haven’t recovered enough capital to survive or those that depend on holiday shopping for a significant portion of annual revenue. 

Companies should plan for this doomsday scenario and stock up accordingly. Cash flow projections, touched on previously, should account for another shutdown. Businesses should revisit – or create – emergency response plans that detail exactly how they will maintain continuity through another crisis. They should avoid large investments in unnecessary projects, resist attempting to go back to business as usual, and plan for the worst and hope for the best. 

Proper preparation includes: 

  • A formal, detailed emergency response plan
  • Cash flow projections that account for another shutdown
  • Continued cost reduction
  • Ongoing savings
  • Speaking with lenders to prepare to apply for financial assistance if needed, or even acquiring a business line of credit in case of emergency
  • Communicating plans and strategies with employees and business stakeholders

Many challenges lie ahead for businesses, not the least of which is remaining solvent. Though its impact is devastating and ongoing, companies that create a strategic financial recovery plan are well-positioned to outlast the pandemic, prepare for the future and, ultimately, secure their futures long after COVID-19.

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