recently had to face a situation that I had hoped I would never have to face again. In late 2008, after a big expansion at my office and the subsequent crash of the stock market, I found myself with a large payroll, bills to pay and NO CASH. I recall shedding some tears and sharing with my husband that I had no clue what I was going to do. He looked at me with that very unemotional gaze, and calmly responded, “You know exactly what you need to do.” He was right. I knew what I needed to do, but it wasn’t what I wanted to do.
If you have ever been in that situation you understand that very painful feeling of having to do what is right for the business even though that isn’t what you really want to do. Fast forward almost 12 years to today, and unfortunately, while I worked hard to minimize debt and to accumulate a healthy cash flow since that time in 2008, I found myself in the very uncomfortable position of determining what I would have to do in my business if this pandemic lasts much longer. The Corona Virus and consequent shut down of America made me realize I may have to again make some tough business decisions. Since I have been through tough times in business before, I know that the answer was just the same as it was in 2008.
The answer is in the Numbers.
While times are very tough, the only way to monitor and guide a business is by analyzing and monitoring the numbers. You can’t guess how well the business is faring. You will know what you need to do and the decisions you will need to make to keep your business afloat when you dig into the numbers. As a business owner, I have become a numbers fanatic because looking at data is critical for making quick decisions and in this unprecedented time when the world has basically shut down, it is critical to make quick decisions that will insure the long term health of the business.
The first thing to look at is CASH. How much ready cash do you have on hand right now? I’m not talking accounts receivable because you don’t know when you will get that money. Payments may slow down and some insurance companies may delay payments because of a shortage of staff or whatever. I’m not talking about money you may get from loans or possible grants. Don’t count on money you don’t have. Deal with the Facts and that is the cash you have on hand right now.
The second thing to look at is what bills do you have on hand that have to be paid Now. Keep in mind some lenders, credit card companies, landlord, etc are willing to delay payment and give you terms. Try negotiating terms if you can. I would advise not to build up debt on high interest credit cards as those fees can bury you and the business.
After that analysis is completed, how much do you have left in Cash when you pay the bills that you have to pay NOW? What are your Fixed Expenses – expenses that occur each and every month that have to be paid. Examples of these may be utilities, car payments, mortgages or rent (again, try to negotiate terms if you can), insurance payments, etc. Look at the cash you have left after paying bills due now and how much do you have left to pay fixed expenses and determine how many months you can stay afloat.
Employee payroll isn’t a Fixed Expense. It’s a variable cost that is dependent on how long you will be able to cover the cost of employee wages with the cash you have on hand. At some point, you will run out of cash and you will have no choice but to furlough employees or to take a cut in salary yourself or borrow money. While loans and promises of funds from PPP are hope they are not cash in the bank. You have to deal with the facts – cash, bills due, fixed expense, etc.
Most of us, don’t always have a lot of time to really dig into the key financial numbers when we are busy working IN the business. Now is the time to work ON the business. I apologize if this blog is too elementary for some. While I am all about hope and know that we will come out of these times better, as a business owner, I have to deal with the facts and make business decisions based on these facts. These critical decisions are emotional but to maintain a healthy business that will live on into the future, the actions we take today can’t be based solely on emotion, they have to be based upon the financial facts of the business.
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