We all know that the Covid19 pandemic has caused an unprecedented disruption to our economy and has sent many businesses reeling to find a way to survive this terrible situation. As our government is working diligently to get the pandemic under control, and provide temporary relief for small businesses to weather the storm. We need to look inward at ourselves as business owners, managers and people to come up with a plan that will allow us to successfully emerge from this crisis.
Whether your business has been classified as essential or non-essential, I know we can all agree that we have all changed the way we do business in the last 7 weeks. I had a conversation recently with a client whose business is deemed non-essential and he said to me at least your business is essential,and you can still generate revenue. What he didn’t consider is that my firm services non-essential businesses and as such my revenues, may not have dipped dramatically, but my firm’s cash flow has indeed been affected by this situation. Currently, at best we will not see non-essential workers begin to return to work until at least April 29th in NYS. That may change in the coming weeks or it may not, either way this is the perfect time for every company to begin planning for the now and the future.
We have all been scrambling to obtain additional funding,whether it is the payroll protection program or an EIDL over the past few weeks,that is where our focus has been, and that process is coming to an end. It is now time to pivot and focus on creating the plan to operate over the next few weeks and months. Operating plans for now and the future are very important, but there are other plans we need to develop and many of us found out the hard way that a contingency plan is extremely important. For today let’s discuss developing a 12-week operating plan that will bring us into the beginning of July.
What is important to remember is that any plan you develop should always be a living plan, one that can be fluid and allow you to adjust to sudden changes. As we have seen recently, sudden changes have become the norm.
The life blood of any plan is cash flow. Today we cannot use traditional methods to create a cash flow projection that will make sense. Utilizing historical data, well there is no historical data for our current situation. So today we need to consider many new variables that we have never considered before. By considering these variables and having the proper plan in place will allow you to sleep at night knowing you are prepared for many situations that may occur.
So here is a list of some of the new variables that need tobe considered when creating a cash flow projection and developing your operating plan.
1) Customer mix
2) What do I do with the funds received from PPP and/or EIDL
3) Sequencing of operations
4) Sequencing the return of employees
5) Availability of additional funding/grants
Let’s quickly address each one
1) Customer mix - I know what you are thinking, hey customer mix is a variable that is always considered when creating a cash flow projection. I am talking about a different type of customer category, one we have never had before, essential and non-essential. It is not as simple as saying customer ABC is an essential company so there will be no interruption in payments from them, that is not necessarily true. ABC company maybe servicing non-essential companies that currently cannot pay ABC, they may need 60 to 90 days to ramp up before they can pay ABC what is owed. Which in turn means that ABC is not going to be able to pay you until they start collecting from their clients. Do not guess on how fast your clients will begin to send payments to you again, my recommendation to all my clients is to reach out to your client base and talk with them, be proactive, find out what they are going through, don’t call just to collect money, call to find out how they are doing, find out what stumbling blocks they are experiencing. This will give you some good information to make some solid cash flow assumptions.
2) What do I do with the PPP or EIDL funds I have received – Many people are not aware that the Payroll Protection Program is a loan, but if you follow certain guidelines over the 8 week period after receiving the loan, all or some of the loan may be forgiven. Make sure you reach out and get the appropriate guidance on how you can utilize the funds and still meet the requirements for forgiveness.
3) Sequencing of operations – It is important to consider when you need to be at full operational capacity, I am going to take an educated guess and say that once the stay at home order is lifted we may not need to ramp up as quickly as we might think. What is also important is you need to figure out what full capacity will look like in the new normal. Once that is determined then you can begin building the road map to get you there.
4) Sequencing the return of employees - There are so many more considerations that need to be considered for returning employees. It is not just a matter of workload and how many bodies will be needed to handle it. That is one component in bringing back returning employees. We now have distancing issues, safety equipment, etc. A well thought out plan will help make the transition for you and your employees efficient and functional.
5) Availability of additional funding/grants - I truly believe that the current funding plans the government has put into place will not be enough for our businesses to get through this crisis. Even those businesses that were prepared and can weather a short-term storm will eventually begin to feel the effects. So, you should always be looking at the what-if scenario and be prepared to obtain the additional resources you will need to survive.
I am hopeful that today I have given you something to think about and you take this time to prepare yourself and your companies for the future. Thank you for listening and I wish everyone good health and happiness.