COVID-19 has disrupted business in a way that we have never seen or expected. I wrote a related blog in April 2020 amid fear, lockdowns, and a surging pandemic. I am updating this as the world we live in has changed forever and I know there are many still frozen by the trauma. I am again asking – What can you do as a small business owner or manager to get through this difficult time? We’ll try to help answer these questions in this blog post.
Work With A Strong Financial Advisor
Your CPA or tax advisor may be the best source to help you through this difficult planning stage. While it may cost you some money to buy some time, it may be the best thing you can do. I have talked to various clients who did not know that they may qualify for emergency loans or grants. They just assumed that they did not. They also did not think of trying to work with vendors and the landlord to try and save money. A CPA or tax advisor usually has the training and stay up on the latest laws coming out. During the pandemic, I took many courses to try to learn how to get my clients the most money to survive. Most CPA’s take their education seriously so they can help their clients when their clients need advice. Going line by line over your budget and actuals and discussing each line with your CPA is a good use of time and money to give you ideas to save money.
Develop a CASH Forecast
Remember – Cash is king! During the pandemic, we developed “Dynamic Accounting” that forecasts our clients cashflow one year in advance through Artificial Intelligence and information we receive from the client on a monthly basis. This has been helpful for clients so they can look forward instead of using past results that have them looking backward. They have been able to work through “What if” situations to determine the best course of action. They have been able to ask questions like “What does my cash flow look like if I add or cut an employee?” “What if I add a new line of business.” Helping businesses see the effect on their cash flow is helpful before a decision is implemented. See our white paper by clicking here.
One of the best things that a CPA can do is get you set up on a cash forecasting tool that will continually tell you how much cash you will have in the next few months. This can be done in Excel or another application so you can continually manage this information and have an idea of how your cost-cutting ideas are working in real-time. This allows you to see a cash shortage and react long before it becomes a problem. Without this tool, you are really flying blind and it can cost you your business. A cash forecast is not a budget as it does not consider non-cash expenses. The cash forecast gives you a gauge as to how much you need to cut to survive.
Implement a Reasonable Plan/Budget To Fit Your Circumstances
Again, cash is king here. No one knows how long this pandemic will play out. You must be nimble and keep your burn rate low. Based on your work with a financial advisor as discussed above, you should find ways to cut non-essential expenses and keep them from trending higher.
You should then check on your vendors. For instance, shop your insurance policies with a broker that can shop multiple markets. Many times, if you have stayed with the same insurance broker for years, they have just increased the policy year-to-year. Outsourced payroll is another area that you can look at. Look at a service like Gusto that charges less than certain other payroll companies. You should look at every vendor you use in the same manner. Get quotes from at least 2 other competitors and be transparent with them about your goals (for instance, how much would you like to reduce the cost and what do you need from them during this downturn).
Look at what you can outsource. For instance, if you have an accounting staff, can you outsource that and improve your business finance with more modern technology and get a better return on your investment.
You can look at what functions you can move to independent contractors. One word of caution: California has new rules about independent contractors. While outsourcing your accounting staff to an accounting/bookkeeping firm is perfectly fine and within the rules, outsourcing to contractors of key business functions could run afoul of the new AB5 law. Please check with an attorney before pulling the trigger on any of these areas.
If you do marketing, get quotes on how to more efficiently market. It may be time to try inbound marketing. Maybe you run commercials or have website banners. You could consider changing your marketing mix to include blogging and customer engagement on social media. Get a social media person that is familiar with your industry. Ask your trade association if they have any recommendations. This may save you money and increase your website traffic.
Finally, proactively communicate with lenders and vendors. You may be surprised at the deals you might find. Many companies are offering free services, reduced subscriptions, or have allowed customers to skip payments. You won’t know until you ask what the lenders and vendors can do for you. It’s up to you to save your business by being transparent and working with your lenders and vendors to conserve your cash.
Downsize Your Footprint
You should engage your landlord immediately and begin discussions on modifications in rent for the future. First analyze what kind of space you need. For instance, once our firm went virtual, we have found it works well. In fact, I heard from a large PEO firm that some of the most profitable law firms have a distributed, work from home workforce. Remote work is here to stay for many companies (see https://www.forbes.com/sites/forbesfinancecouncil/2021/04/21/remote-work-is-here-to-stay-what-that-means-for-small-business-lending/?sh=67fa9c7a514a ). 57% of employers plan to offer some form of remote work according to a recent survey. This means you may just need a fraction of the space you had before the pandemic. That space may be just to meet clients or to get together as a team occasionally.
Have a lawyer review your lease to determine if there are any clauses in the lease that can give you leverage in negotiations with your landlord. Each lease is different, but you never know until your review. Once you have reviewed the lease with your lawyer, talk to your landlord. For instance, if you have a clause where you can get out of the lease, that gives you extra leverage in negotiations.
To strengthen your negotiating position, you need to recognize the market that you are negotiating in. How hot or cold is the market? For instance, if you are in the Bay Area, you probably can get more of an adjustment downward and save money. If you are in St. George, Utah where the vacancy rate is under 1.5%, any savings here will be difficult to realize.
You may be able to sublease the extra space to a non-competitor. For instance, if you are a business attorney, you may be able to rent to a divorce attorney. Or if you are a business insurance broker, look at renting to a personal lines broker. You may have to think outside the box here. What types of businesses are compatible with your business?
One word of caution here: if your lease is coming up for renewal soon, be very careful not to sign an extension that locks you in for a longer amount of time. For instance, if your lease ends at the end of the year, you want to have the flexibility of walking away and getting a new space at a lower cost. Of course, you have to take into consideration all the modifications you have done to that space. It is certainly different for a restaurant versus an insurance brokerage. However, if you don’t really want to move, then just negotiate the lease for less rent. If you have trouble negotiating, get your CPA or attorney involved to help you.
Switch To Line of Credit From Credit Cards
At this point, if you are using credit cards, try to switch to a line of credit and make interest-only payments during this difficult time period. With lower minimums, you can save money. However, if you do not already have a line of credit, this may be difficult to obtain in this environment.
Check Out Government Loan Programs
There were many programs out there through the government that helped businesses stay afloat. The main one was the Paycheck Protection Plan. This program has concluded. See https://www.uschamber.com/co/run/business-financing/government-small-business-grant-programs for programs where you may be able to get help. Also recognize that the Employee Credit Retention program may be able to get you money (See https://www.paychex.com/articles/compliance/employee-retention-credit ). Bottom line, if you had a decrease in revenue of more than 20% in any of the quarters of 2020 versus 2019 or in 2021 versus 2019, then you should be talking to your CPA about amending your payroll returns to get this credit.
Many states also have favorable loan programs. For instance, California has the Small Business Disaster Loan Guarantee Program for small businesses located in California with 1-750 employees. The state guarantees 95% of the loan. The loan is negotiated between the lender and borrower and can be found here: https://www.ibank.ca.gov/small-business-finance-center/
Working with a professional financial advisor (CPA, etc.) is among the best things you can do. A trusted CPA can help build a bridge to where you’ll want to be and get to the other side successfully. Building a cash forecast is another important component that will provide you with a gauge as you start to make changes in your business. However, if your economic circumstances become severe and you think that you may have to close, please consult the advice of a good bankruptcy attorney. I have worked with businesses that have taken advantage of the bankruptcy laws and emerged stronger due to the advice of a good bankruptcy attorney. In short, there are many options to help you emerge on the other side of this crisis, but it requires that you take bold actions and counsel with knowledgeable professionals.