Updated: Feb 11
The last couple of weeks have unfolded in a way that was likely not one of the downside scenarios even the most prudent business owners had previously planned for.
While all of us are going through this very difficult health crisis in different ways, we are learning that the accompanying financial crisis is also becoming incredibly painful.
The nature of our government’s relief plan for small and medium-sized small businesses is rapidly evolving and we’ll likely see more clarity on that in the coming week. At this time the SBA is offering disaster relief loans of up to $2 million and businesses in most states of the country have become eligible to submit their applications in the last couple of days. (https://disasterloan.sba.gov/ela/) If this is a remedy you think can help your business, we recommend getting your application submitted straightway. Millions of businesses will be applying, so waiting even a few days could push you much further back in the queue.
In this precarious time, financial forecasting and reporting will become more critical than ever. Banks, equity investors, and other partners, will all need to make concessions as the entire planet is going through a similar situation. However, each of these parties will still need to understand a clear financial path from today through to the end of this pandemic.
Unfortunately, even with concessions, bankruptcies, layoffs, and closures will happen. And it will be the businesses that can best articulate to their stakeholders their strategy for becoming solvent again that will form the cohort that emerges on the other end.
We’ve already seen banks give generous concessions to companies we are working with and more will likely be coming. But banks may not give what you don’t ask for. And even if a particular institution gives blanket relief to its customers, you may need a more specific or larger solution.
That is why, in additional to the SBA loan consideration described above, we are recommending every business owner who is experiencing a negative financial impact take the following steps this week:
1) Prepare a detailed income statement and balance sheet forecast that:
a. Quantifies your business model adjustments for getting through this
b. Quantifies the amount of cash you will need from debt or equity partners
c. Quantifies the concessions you will need for your current fixed charge obligations (i.e. principal payments, interest payments, rent, lease payment, recurring vendor payments)
d. Maps out a few most likely scenarios (what if this crisis lasts two more weeks? Two more months? What if there is a national shutdown? Etc.)
e. Be sure to include all key successful elements of a turnaround.
2) With #1 in hand, open a dialogue with your financial partners before they reach out to you and before you miss a payment.
3) Open lines of communication with all of your other stakeholders to let them know how you plan to operate through the next couple of months. Don’t forget your vendors. Some of them may allow you to preserve cash by paying them late, but many of them will be in the same situation you are and will need cash just as much as you do.
4) If you have any questions or need assistance with any of the above, please give us a call. It can be difficult to do all of the above while also keeping up with the extra responsibilities of running the day-to-day. We’re here to help.