Business owners have had much to wrestle with this year. What tips do you have to help our members project/manage their cash flow, keep more of their hard-earned cash, and/or access more capital before they are financially strapped?
Linda Forman CPA, P.C.
These are difficult times, made worse by the lack of clarity with some of the pandemic related funds. For those who received PPP loans, there is no assurance as to whether your expenses will be deductible if the loan is forgiven. Since small business is being hammered this year, Congress needs to direct the IRS to allow expenses paid with PPP loans to be deductible. Congress has been slow to act, so some businesses are delaying loan forgiveness requests until 2021. By delaying the forgiveness process, companies hope that there will be favorable tax guidance next year.
For companies that are still cash-strapped, there are two routes to consider: Money may be available from Congress in another round of forgivable loans for businesses truly in need; and, businesses can also apply for EIDL loans once its PPP loans are forgiven.
Budgeting and managing cash are crucial now. Take steps to tweak your business model to increase revenues or cut costs. Act to collect receivables and see how you can cut back on spending to get through the next several months. We are an inventive group - reach out to your fellow NAWBO members for any ideas to make running your business strategic and well-planned. We are here to help each other.
My first piece of advice to fellow NAWBO members is to BREATHE. We will get through this dastardly year called 2020 but we must visualize ourselves getting through the mud and the muck! Our thoughts are powerful and have infinite organizing powers. On a more practical note, I think that planning and forecasting a budget for 2021 is ever more critical this year than it has been in the past. Here are 3 tips on forecasting for 2021:
- Know your cash-burn calculation. Most of us have experienced a drop in revenue. You must be able to know and understand current cash on hand and, IF you are able to bring in X amount of revenue and anticipate X amount of relatively fixed expenses, how long will your current cash position last you? So if you have $50,000 on hand, are bringing in $30,000/month and have $38,000 expenses per month, then your cash on hand will see you through 6.3 months before you will need to either increase revenue or decrease costs by a minimum of $8,000/month.
- Have absolute visibility and clarity to all of your business expenses so that you can cut back to the bare minimum until you feel that your revenue generation sources are secure.
- If you are re-imagining the possibilities in your business and you want to consider a new revenue stream, you can test if your business can afford it by setting up a DRIP bank account and trying to drip a small amount of money into this account every couple of weeks. By doing so, you can determine if your business can afford the cost of the new endeavor. As a Profit First Master, I strongly believe in this concept: “when in doubt, open an account”.
Oldenburg Accountants & Advisors
Tips for managing cash flow during trying times –
- Revisit variable costs – Trim expenses where you can.
- Manage receivables – Make efforts to improve collections.
- Extend payment of payables – Work with your vendors to extend payment terms.
- Use your line of credit wisely
- The best time to get a line of credit is when you don’t need it. Most businesses should have a line of credit in place at all times. It is difficult to get financing when the business is strapped for cash or the financials don’t look so great.
- Prepare a weekly cash flow projection and working capital analysis to estimate the timing and amounts of your cash inflows and outflows so you can make adjustments as needed.
- You may need to collect additional cash from customers or delay paying your vendors to have enough cash to cover payroll, for example.