Updated: May 20, 2020
Millions of business owners are going through an unprecedented, challenging and uncertain time. While we may yearn to go back to the pre-Covid world, many of us are beginning to accept that our future is not likely to look like our past. The already existing trends toward online business and remote work have take a giant leap forward and our buying and social habits may never be the same.
We are already seeing some industries surge forward while others have been catastrophically damaged. We can assume that at some point this virus will be defeated and the hysteria will die down. And whatever the new normal looks like, it will be the businesses that managed cash most effectively that are poised to thrive. Millions of businesses have had their payroll effectively covered by the PPP program, but that covers only up to two and a half months of payroll. Beyond that businesses will need to be economically viable again.
While employee cuts are the most difficult to make, having an organization still alive that your employees can come back to is much better than not.
So if your business is one of the ones struggling to see the other side of this, start with these steps:
1) Segment your vendors into essential and non-essential. The essential vendors are those you need to run your business right now. Without them you literally can't operate. The non-essential vendors may be important, but if they stop giving you their product or service, your business can still make it. You'll need a different strategy for dealing with each of these segments. Communicate transparently with each of them and let them know what you can and can't do. Assure the non-essential vendors that you intend to pay them in full when you can, but that in order to see a day when you can pay then, you need to preserve cash right now. You'll need to keep the essential vendor relationships alive with cash. So you'll likely need to pay them something. They may be going through the same cash issues you are and may have limited ability to keep sending things to you if you can't pay. But open communication may allow you to pay them a bit later or over time and that can buy you more critical cash preservation.
2) Present a pro forma plan to your lenders that demonstrates your path for getting through this. Transparency is the key. Waiting until things get really bad before communicating will limit the options your lenders have to work with you. Most lenders are able to offer 60 to 90 day payment freeze right now. That may be all you need. But if you need more, you'll need to layout a proforma they can use to understand how granting your request will increase and not decrease the odds that they eventually get paid back. More on what should be in your pro forma here.
3) Stress test your pro forma. We've made a subsequent post on stress-testing your business which is now online. It's easier than you might think.
4) While employee cuts are the most difficult to make, having an organization still alive that your employees can come back to is much better than not. If you need to make cuts, explain why and help your people get access to the large amounts of aid that is out there.
5) Take this time to reflect on your strategic plan. We should be working on our business instead of in our business as much as possible. That can be difficult during normal busy routines. Now that things are disrupted, it's a perfect time to make lemonade out of lemons and force time to work "on your business" into your schedule. The cash flow returns to developing a solid, values-based strategic plan aren't as immediate as the steps above, but they are compelling and will maximize your chances of emerging from your competitors in whatever the new normal ends up looking like.