Business Survival With COVID-19: Protecting Cash

As the world faces and attempts to absorb, the realities presented by the Covid-19 health crisis, businesses and in particular small businesses, need to be focused on survival.

The most important survival step to take, after ensuring the safety of the team, is to protect, as much as possible, the company’s cash position. Do whatever you can to cut costs and maintain liquidity. Re-focus on your core business and pause or eliminate any unnecessary projects which may be viable in the long-term but utilize short-term liquidity.  Talk to your lenders as soon as possible to discuss your plans and the availability of loan relief options if needed. The goal is to “survive today in order to thrive tomorrow.”

Tools for the Battle

Management needs to consider the tools it will utilize to fight the battle.  We recommend the “rolling 13-week cash flow analysis”:

• The rolling 13-week analysis is usually prepared in Excel and can be a simple or complex depending on your desires and the complexity of the business; there are even some templates that can be found in a quick Google search to jump-start the effort.
• The spreadsheet contains 13 columns representing the next 13 weeks. The rows will be dependent on the relevant cash in and cash out categories for your business.
• Preparing the analysis can provide critical insight into how much cash your business generates, from where, and when you can reasonably expect it. The exercise also provides a thorough assessment of cash needs and the timing of cash outflows. Once all of the data points of expected cash inflow and outflow are captured in the analysis it will normally highlight critical management decisions that must be made no in order to protect your cash flow position and provide for survival.

Critical Management Decisions

Some of the actions a business can take to manage cash flow utilizing the 13-week analysis include:

• Working with customers to understand the new collection cycle
• Negotiating with vendors for extended payment terms
• Allocation of critical and non-critical vendors for decisions regarding cash outflows
• Timing of workforce reductions or ramp-ups
• Negotiating with lenders to address a temporary liquidity hurdles
• Communicating an overview of the situation with key business stakeholders

Traditional Tools vs A Non-Traditional Crisis

Because of the effects of Covid-19 across all businesses, typical cash management tactics may not provide much relief. Some customers may not be able to pay their receivables and vendors may be looking to accelerate your payment rather than extending your terms.

However, the rolling 13-week cash flow analysis can and should be adjusted to your current expectations for cash coming in and cash needs so that you can clearly communicate the situation and possibly turn to other sources to manage your cash position if needed.

SBA Disaster Loan Program

As you may have heard, the Federal government, through the Small Business Administration (SBA), has programs available to assist businesses during these crisis.  The SBA is currently providing disaster relief funds for a variety of disasters including Covid-19.  Making use of the programs that are available to you can help increase cash inflows and may temporarily or permanently decrease cash outflows.

Bank Loan Modifications

The banking regulators have indicated that they intend to ease restrictions that borrowers might normally face when seeking a loan modification.  According to a March 22 joint statement issued by multiple agencies (Federal Reserve System Board of Governors, the FDIC, the NCUA, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, and Conference of State Bank Supervisors) regulators will not automatically categorize all Covid-19 related short-loan modifications as troubled debt restructurings (TDRs). This is an important benefit for businesses trying to manage through the financial impact of Covid-19. Normally, when a loan modification is classified as a TDR this could limit the ability to make future modifications to the agreement and triggers a set of financial accounting and reporting rules in order to properly reflect the substance of the TDR.

According to the joint statement that was issued, short term loan modification of less than six months, including payment deferrals, waivers, extension of repayments terms or other delays in payment, would qualify for treatment under the eased restrictions.  However, borrowers need to be considered current, generally less than 30 days past due on their contractual payments at the time a modification program is implemented.   We recommend that you reach out to your financial institution before you fall out of good standing.

Clayton & McKervey has assembled a list of resources to help; available on the home page of claytonmckervey.com.  In addition, please contact your point of contact at the firm for more information.