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Cash Flow Triage for Small Business During the COVID-19 Crisis

The basics

The COVID-19 crisis has caused widespread uncertainty in the economy and greatly disrupted normal business activity. We must also realize that we are “all in this together” and must make sacrifices to get the economy moving forward. This is especially true for Colorado’s physician community fighting on the front line of this crisis. While there are numerous problems and challenges facing a small business owner during this crisis, the most critical is cash flow.

There are two basic ways a business can impact cash flow: (1) create additional income or (2) reduce expenses. Some businesses have ample cash reserves or access to lines of credit to help carry them through the COVID-19 crisis. However, many businesses are not so fortunate, so they need to implement a plan of action to deal with the cash flow challenge.

However, remember that the most important step as we move forward is communications. Make sure you maintain communications with your customers, employees, lenders, vendors, and suppliers. Since the COVID-19 crisis will impact everyone, we all need to help each other to move forward.

Cash flow triage 

No profession is as familiar with triage as the physician community. In this case, the patient is your business and it needs a similar process to determine the most critical conditions from a larger number of conditions that require attention so action steps can be established to stabilize its condition. The following steps will help you triage the cash flow situation of your business and establish a plan to survive the COVID-19 crisis.

  1. Establish a timetable.
    In order to formulate a cash flow plan, a timetable needs to be established. For the purposes of this exercise, we will assume a 12-week period.
  2. How much available cash do you have?
    Identify all existing cash accounts that your business can access. This can include operating accounts, reserve accounts, revolving loans, lines of credit, etc. It is recommended to NOT include credit cards.
  3. What are your fixed expenses?
    Prepare a list of all long term or on-going payment obligations. This includes your landlord, mortgage holder, medical and office equipment leasing companies, auto lender, bank loan, line of credit, credit card payment, commercial loan etc.
  4. What is your normal operating activity?
    Develop a spreadsheet to show your normal operating activity. This will reflect your “normal” monthly operating activity and determine typical revenue and expenses projection for the next 12 weeks. These figures will become important as you develop a cash flow plan and estimate the potential negative impact to your business.
  5. Create a COVID-19 forecast
    Put together a forecast or projection of what your business revenue and expenses (including normal employment costs) will look like over the next 12 weeks. Make sure to plug in your estimated revenue over the next 12 weeks. The numbers will be far less than those from a normal operating period, but it is important to understand what kind of operating revenue you can expect over the next 12 weeks. Be realistic when you estimate income during the slowdown.
    • Include normal employment and operating costs.
    • The objective is to identify cash shortfalls.
  6. ​​Cutting costs to increase cash flow
    It is important to have a full understanding of your employment and operating costs so you will be able to make the best triage decisions about managing these costs in such a way to generate cash flow over the 12-week period. Looking at employment costs can be quite difficult, but consider the availability of increased unemployment payments and the potential of new financial support options available under the federal stimulus package.
    • Review employment expenses
      1. Consider a “furlough” option for certain full-time employees by going to a reduced workweek during the COVID-19 Crisis. For example, have a three-day work week with three days of pay.
      2. Reduce or eliminate part time work until business picks up. While layoffs are not popular, it may open unemployment benefits for your employees and these benefits are being increased, communicate with your employees to let them know that you will bring them back as business picks up.
        • ***A new SBA loan available under the CARES Act passed on March 27 has loan forgiveness criteria that is dependent on maintaining payroll, though, so be sure to fully explore the potential consequences before decreasing payroll.
    • Review operating expenses: Investigate the potential for re-negotiating or restructuring existing long-term financial commitments for rent, loan payments, lease payments, etc.
      1. Seek a payment holiday from your landlord and the company that leases equipment to you. Ask to skip one or two payments and then spread it out over the next 12 months.
      2. If you have a commercial loan, contact your bank and see if you can move to an interest only payment plan for the next 6 months and discuss extending the term of the loan.
      3. Communicate with creditors/lenders/landlords about payment plans. Ask for extended payment terms, payment holidays, or debt forgiveness. Always keep your creditors informed on your ability to pay and interest in maintaining your business relationship.
      4. Juggle and prioritize your accounts payable to maximize the best use of your available cash.
  7. Identify sources of temporary income
    We do not know how long government instructions to “self-quarantine” and practice “social distancing” along with restricted business operations will last, but we need to make plans for an eventual recovery. During this time, local, state, and federal governments will make available a set of financial resources to help small business weather the COVID-19 storm. By implementing the cost-cutting steps from Step #6, you will have reduced operating costs, so you will be able to maximize the use of these temporary funds.
    • Look into whether any small business loans, either from existing programs or from the new CARES Act passed on March 27, would be a good fit for your business.
    • Come up with new products or services that you can offer that will meet your patients’ needs during the COVID-19 crisis. Be innovative and take advantage of relaxed government regulations and increased reimbursement on services such as telehealth.
    • Review your personal savings and determine if you might be able to invest or loan money to your business to help carry you through the 12-week period.
    • Talk with your local banker and see if they are willing to establish a line of credit with interest only payments.