, The Small Business COVID-19 Survival PlanCOVID-19 has disrupted business in a way that we have never seen or expected. The sudden stop of the economy threatens the destruction of small businesses that were already on the edge in a strong economy. 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 past two weeks, I have taken many classes online regarding the new laws from experts. 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!  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 an Emergency Plan/Budget

Again, cash is king here. You must lower your burn rate. Based on your work with a financial advisor as discussed above, you should find ways to cut all non-essential expenses. Minimize travel, cut subscriptions to internet applications, cut staff lunch meetings, cut back on janitorial, and find a cheaper internet provider (if possible). These are only a few ideas you can come up with as you go line by line and brainstorm how to save money. Many others will be particular to your business. If you are in a labor-intensive business, you may need to cut wages by a certain percentage or institute layoffs.

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.

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 & Negotiate A Temporary Decrease in Rent

You should engage your landlord immediately and begin discussions on a temporary abatement in rent. 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 and see if they are willing to abate on your rent. If you have been a reasonable renter and have paid your rent regularly on-time, then ask your landlord what rent abatement they would be willing to give you. To strengthen your negotiating position, just ealize that retail space and office space will probably never come back fully. Landlords are afraid that they will have space that they will not be able to rent. The less desirable the space, the less likely they are to rent. See if you can get an abatement for the remainder of the year. Don’t be afraid to ask for an abatement of 40% – 50%.

Determine if you really need all the space you currently have. 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

Congress has passed the CARES act that includes a Paycheck Protection Program and the Emergency Injury Disaster Loan (EIDL) and Emergency Injury Disaster Grant. These programs extend very favorable loans (in some cases the loan is forgivable under the Paycheck Protection Program). I discuss these loans and grants in this blog post.

Think of the Paycheck Protection Program as a way to keep your employees employed over an 8-week span when we all hope that the economy will reopen. The government is essentially saying that they will give you money to keep these people employed, and if you use if for that purpose, it will be forgiven. Think of the EIDL as a loan that will cover 6 months of expenses at favorable terms.

While the initial tranche of money for the Paycheck Protection Program appears to have run out as many banks have stopped taking applications, the Treasury Department has requested an additional $250 billion. You should look at how you might qualify for this funding. If you do qualify for this funding, you should get your paperwork in order and be ready to submit as soon as your banker has the funding available. You can also look at the EIDL loan program. If you are unsure, please give us a call at (925) 256-6321 as we have helped clients qualify for this funding.

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/

In Summary

Working with a professional financial advisor (CPA, etc.) is among the best things you can do to salvage your business now and thrive later when the economy comes back. A trusted CPA can help build a bridge to where you’ll want to be, once the outbreak is under control. Building a cash forecast is another important component that will provide you with a gauge as you start to plan the cuts in your business. The cash forecast will tell you how deep you must cut. 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.

As always, if you need help navigating these waters, we’re here to help! Call us at (925) 256-6321 or email me jrunalp@unalpcpa.com.