Business Owners – Financial Concerns in Coronavirus Economy

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How important is it to have a financial plan in place right now?

  • Very important.  Every business should have a financial plan and business plan in place, or at least have committed serious thought to how they are to come out of the current environment, if at all.

What are the most important elements to include in this plan?

  • Focus on core issues and ignore the noise.  Emotion must be removed from the equation.
  • What is needed is an examination of NNNN.  Now, Next, New, Never.
    1. Now
      • What was the business’ financial condition before the pandemic?
      • What resources are available now and over time (cash in bank, available lines of credit, personal resources, relationship with bank or non-bank lender, and availability of trade credit)?
      • What are current operating expenses and what expenditures are anticipated over time (necessary or can be deferred)?
      • If business received PPP loan, what is the probability of 100% forgiveness (anything less will become a loan requiring repayment within 18 to 24 months)?
      • Can business operating efficiency be improved?
    2. Next
      • Define the business and market it addresses (B2C or B2B or hybrid, brick & mortar or web based, etc).
      • What is the condition of the target market and customer base? 
      • Has there been demand destruction due to high unemployment and widening wealth gap?
      • How is the supply chain?  Has there been supply disruption?
      • How are the employees? 
      • Is the mix of employees appropriate for restarting the business and meeting the demands of the new environment?
      • What is the competitive environment and condition of competitors (reputation, market dominance, etc.)?
      • Are there sufficient resources to restart and ramp up business as the government begins to loosen shutdown restrictions (from internal or personal resources, new loans or 3rd party capital injection)?
      • Will the business qualify to apply for the MSLP (Main Street Lending Program)?  This latest Federal Reserve program’s rollout/terms and conditions are being finalized, intended to be an important supplement to the PPP and can be used by the business as necessary liquidity to restart operations. 
    3. New
      • How has the effects of the pandemic impacted the target market environment, business environment, competitive environment, and financial capacity?
      • How will the pandemic impact ability to attract/hire staff, and at what cost?
      • What is the financial health of current lender/bank (lending decisions will be affected by quality of lender’s portfolio and their own funding sources (lending platforms vs non-bank/private lenders vs banks))?
    4. Never
      • If the business is hemorrhaging and future prospects are dim, circle the wagons and plan for an exit.

In terms of priority, is there a certain order people should be addressing financial to-dos right now?

  • Update financials to show current performance (Income Statement, Balance Sheet, and Cash Flow).
  • Prepare financial forecast for remainder of 2020 and projections for 2021.
  • Prepare monthly cash balance for remainder of 2020.

Other actions?

  • Communicate with all major vendors and customers.
  • Meet with bank/lender to review business and financial projections in preparation for additional loan request.