Weathering the COVID-19 Storm

We’ve been talking to our clients about how to get through the current storm. We think the advice we're providing may also be of use to you. You can get through the hard part in less than a day. Without further ado:

First and foremost, if you are still open for business, let your customers know how you can still meet their needs. Communicate often. Check out mobilizeus.com if you want to use text messages to communicate.

After that, develop a plan to get make it through the storm; here's the back of the napkin version to figure out a 90-day plan:

Step #1: Determine what you have to work with. Go to your balance sheet and add together cash and no more than 50% of receivables. Many customers will be in a cash crunch, and therefore not paying unnecessary payables.

If you have an unused line of credit, any amount you can draw on it can be added this amount. This is your short term liquidity.

Note: If you include anything from your line of credit, consider drawing on it as banks can end its availability at anytime.

Step #2: Determine your daily cash burn. Go to your income statement and review the last three months of expenses. Reduce this to necessary cash expenses- things that will need to be paid to keep the doors open and no more. Now, do this again. Divide this by the 90 days in the quarter to get a daily cash burn.

Step #3: Divide the amount from step one by the amount from step two. This is how many days you can keep the doors open without new revenue. This is similar to the defensive interval ratio.

Step #4: If you still have revenue being earned, take the daily average of gross margin over the last 30 days, and add this into your previous calculations.

Step #5: If you need to cut people costs to make it through, the amount to cut can be figured out by using the above calculations. Step 5a: Talk to you people about how to solve this. Some may be willing to take bigger cuts or furloughs to help their coworkers.

Step #6: Communicate your plan with stakeholders, both internal and external. Your creditors should understand the current environment, and will usually allow 90 days of flexibility. Assure them that payments will resume. You may need to reconsider debt payments as part of daily burn.

Don’t dread these communications, your creditors will appreciate it.  Remember, you're a creditor to your customers and assume many won’t be paying timely. From your creditor’s perspective, they would prefer to collect late rather than not collect at all. Banks don’t want to liquidate your assets. Similarly, your landlord would rather a few unpaid months rather than a longer vacancy and then incur the costs of finding a new tenant.

Lucky Step #7: Talk about ways to grow your top line, and secondarily your bottom line. How can you add more value to your customers? How can processes be improved? Did Step 2 identify any waste? There is opportunity here. Envision your organization emerging stronger after this storm.

Step 8: Check for government resources. The Government has begun to pass legislation to help organizations.

Families First Coronavirus Response Act as summarized by the National Law Review.

The State of Colorado has a dedicated site: https://covid19.colorado.gov/state-recovery-assistance

To link directly to the Colorado COVID-19 Business Resource Center. This site consolidates funding resources, labor & employment resources, etc.

If you’d like speak about your particular situation, schedule a free consult.