To my esteemed clients:
My recommendation of what you should do right now
1. Cut unnecessary business expenses and charges for services that are currently ineffective or lack sufficient benefit to continue at this time.
2. Determine the condition of your profitability if you are allowed to be open right now: That’s your total expected income you can produce less all remaining business expenses. Keeping your same take home pay, except reduce that by personal expenses that also are unnecessary or lack sufficient benefit for the cost. Now, be careful -- “income produced” is business income you generate during the period, and is income that can be collected. Also, it doesn’t include current receivables generated from prior business that you are collecting or will collect – that does NOT count in this exercise.
3. For non-essential businesses and others that are not open and don’t plan on it until ‘shelter in place’ is lifted, you should forecast what your business will look like when you do open – what collectible income you expect to produce, and what your business expenses will be. Every business is different, but keep in mind what I said in #1 above about cutting unnecessary expenses. Consider everything, and include all your variable costs. And ask yourself questions, like: Will you have to advertise more to get people back?, What will your staff look like?, and so on.
4. The process I’ve just recommended should also include the costs of changes from whatever temporary and permanent modifications, additions, or transformations you will need to employ into your business due to the recent changes in our society, in our human interaction, and such related matters.
5. At the same time as the above, everyone’s first consideration for help should be the SBA Disaster Loan. https://www.sba.gov/funding-programs/disaster-assistance. This has the most flexibility and can help you more in the longer term as well as the short term.
6. Second, decide between the 3 main options in the Stimulus Bill (see prior posts for specific information):
Layoff of workers to file for unemployment, providing for no disruption in net total income to employees
Paid Leave for employees, for which you receive a payroll tax credit – or a combination of these first two items is an option, because employees may file for partial unemployment`
The PPP loan or Paycheck Protection Program; a forgivable loan that can be spent on payroll, rent or utilities, but must be spent over the first 8 weeks......
Keep in mind that sole proprietor self-employed persons are employees for purposes of unemployment benefits under the Stimulus Bill.
7. Next, determine what obligations can be deferred. We already know some federal and state payroll taxes and income tax can be deferred. And some financial institutions have made provisions for the deferral of personal and commercial mortgages. Determine if there are hidden costs to that, or later add-ons, then pick and choose what works best for you. Remember, this action is NOT a reduction in business nor personal expense on an ongoing basis, so do NOT include that as a reduction in expense when you predict your business income and expense as recommended above. These are simply deferrals that provide more cash flow currently, but not in the long term, to help you get to where you want to be – profitable, or more profitable.
8. Most importantly, in all cases you MUST either organize to be profitable now, or be able to forecast that you will be profitable in the future with enough cash reserves to get there. In simple terms, you can only use the free money or borrowed funds to get you out of a hole – you cannot continue to operate in the hole for very long. It should be obvious that if you use up your receivables, and funds from loans, and you’re still not profitable thereafter, that you will not be able to continue.
9. Finally, re-visit this entire process regularly and consistently, adjusting it for your most recent experience and new information. A forecast is a forecast, and like the weatherman it is often inaccurate. You MUST keep adjusting it in order to confirm that you can attain the profitability you are reaching for.
10. Results: This process takes work, but it is crucial, and will possibly take a dedication to the economy of your business like never before, but in the end it will allow you to survive and eventually thrive.