strategies for business survival + cash flow forecasting...2020/04/17 · strategies for business...

Strategies For Business Survival + Cash Flow Forecasting

The goal of this webinar is to reduce your company's overall cash outflow. To preserve cash in the bank and extend your company's ability to survive. Your credit score may suffer. However, keep your eye on what is important. Preserving cash!

Washington Small Business Development Center 2

Cash Flow

• Cash flow is the movement of all money in and out of all of your bank accounts.

• Positive cash flow is when more is flowing in than out.• Negative cash flow is when more is flowing out than in.

Recessions cause negative cash flows• When your income drops you must immediately reduce

expenses, inventory purchases, if you can rent/lease payments, and supplier and loan payments.


What is Cash Flow?

Step 1: Cash Controls

• Eliminate any expenses not essential to business survival

• Triage your expenses. What can wait?

• Grab your Profit and Loss statement and examine all expenses.

Lease reduction or abatement

• Contact your landlord immediately to discuss reduced rent or rent abatement

• Can you defer, extend or lower payments in exchange for a longer lease term or a balloon payment later?


Profit and Loss Statement

Step 2: Payroll Reduction

• It may be just ‘you’ running the company for a while. Like back in the beginning for some of you!

• Objectively assess your options regarding your employees. One option is the Payroll Protection Program to assist you in avoid layoffs. If you do need to layoff staff review the options through Washington State Employment Security Department. Act immediately. Waiting to do so will only drain your bank account.


Expense Controls

Payroll is typically one of your biggest expenses.

Step 3: Reconcile your bank info. to your bookkeeping daily

• Now grab your balance sheet. The first category on a balance sheet is assets. The first account under assets is your bank account.

• During recessionary times make sure your bank information is reconciled to your bookkeeping system on a daily basis. Keep a watchful eye on the balance.

Step 4: Inventory Management

• Take a full inventory • Stop buying inventory

unless you can sell it with quick turnaround

• Consider reducing the price on inventory that does not sell quickly to generate cash


Balance Sheet: The accounting equation of Assets = Liabilities + Equity

Step 5: Manage Accounts Receivables

• Collect any/all outstanding accounts receivable but try to preserve important customer/client relationships for future business.

• Consider offering the following:• A cash discount of 1% to 3% for prompt payment.• A lump sum payment discount for slow pays. • An option of making small monthly payments. Remember some

cash in flow is better than no cash in flow.


Balance Sheet Assets

Step 6: Suppliers

• Talk with suppliers immediately about whether you can delay payments or other ways you might be able to reduce costs.

Step 7: Tax Liabilities

• Talk with your accountant about suspending your estimated IRS payments


Balance Sheet Liabilities

Step 8: Engaging Your Lenders for a principal and interest Deferral


Balance Sheet Liabilities

• Ask for a 3-month principle and interest deferral• Look at re-amortizing your loan to lower your monthly payment

• Explore contract extension options

Step 9: Utilities

• Some utility companies are offering COVID-19-related fee reductions.

Step 10: IRS and Department of Revenue


Tax Breaks

• Seek emergency tax relief from:

WA Department of Revenue: https://dor.wa.gov/get-form-or-publication/publications-subject/tax-topics/disaster-relief-taxpayers

Internal Revenue Services (IRS): https://www.irs.gov/businesses/small-businesses-self-employed/disaster-assistance-and-emergency-relief-for-individuals-and-businesses

https://dor.wa.gov/get-form-or-publication/publications-subject/tax-topics/disaster-relief-taxpayers

https://dor.wa.gov/get-form-or-publication/publications-subject/tax-topics/disaster-relief-taxpayers

Step 11: Insurance

• Contact your insurance broker to see if you have business interruption /continuity insurance and if it applies to our current situation. I have been told a number of policies do not cover viruses.

Step 12: New Markets

• Determine if your business can move any product or services online, or if this current environment offers any opportunities for new revenue streams.


Other Items

• 1. Triage P/L to reduce cash outflow

• 2. Payroll reduction

• 3. Daily bank/bookkeeping reconciliation

• 4. Inventory Management• 5. Manage A/R

• 6. Negotiate with suppliers

• 7. Possibly suspend tax estimated payments

• 8. Lender deferral

• 9. Utility COVID 19 assistance• 10. WSDOR and IRS relief• 11. Business interruption

insurance

• 12. New market opportunities

Twelve Steps to Reduce Cash Outflow

After implementing the first 12 steps to reduce your cash outflow, now is the time to bring it all together in a cash flow forecast to see if it works.

Why do a cash flow? To help you understand the timing of all inflows and outflow or money in your bank accounts.


Step 13

Washington Small Business Development Center

Cash Flow

• Cash flow projections helps you determine when and if you will need more money. It will show you how much is needed or can I make additional cuts.

• Cash flow projections done properly empower the you to make better decisions.

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Accrual Rules of Accounting

• You enter sales into your accounting system when earned. Not necessarily when you have been paid. This process involves a balance sheet account called Accounts Receivables (A/R).

• Likewise, you enter expenses when incurred. This involves another balance sheet account called Accounts Payable (A/P).

• Both A/R and A/P help you understand what is owed to you and what you owe. These are called Current Accounts. Meaning what will come in or go out in the next 12 months or less.

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Cash Rules of Accounting

For cash flow forecasting I recommend using the cashrules of accounting. I want to know how much cash isgoing into and out of my bank account. For overall fiscalmanagement you and your accountant will decide whichmethod best fits your business model.

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You enter income when you receive payment and you enter expenses when paid.


Direct or Indirect Method of Cash Flow

• Direct Method of cash flow forecasting tracks all cash in and out of all your accounts on the P/L and on the Balance Sheet.

• The Indirect Method uses the accrual net profit from the P/L. Then adds to or subtracts from that total with changes in the account balances from the Balance Sheet. The vast majority of statements of cash flow use this method.

• Both work and should arrive at the same conclusion. • For my example I will be using the Direct Method.

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Cash Flow Projection

• Complete a cashflow projection.• This will show you if you have a cash shortfall• When that will occur• Do we need addition cuts, or • How much additional cash is needed to cover that shortfall• Your projection will drive your loan request• Track your cash flow on a daily basis during a recession

Your local SBDC can help with this. We provide free, confidential business advising across the state.

Find an advisor: https://wsbdc.org/contact-an-advisor/

https://wsbdc.org/contact-an-advisor/


Direct Method of Cash Flow

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Cash In Flows

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Cash Outflows

Expenses 1 2 3 4 5 6 7 8 9 10 11 12COGS - Labor $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -COGS - Other $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Interest Expense - Term Loan $ -Advertising/Marketing $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Computer and Internet $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Dues & Subscriptions $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Insurance - Business $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -License & Permits $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Meals & Entertainment $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Merchant Fees $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Office Supplies $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Postage and Printing $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Professional Fees $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Rent/Lease $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Repairs/Maintenance $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Taxes - B&O $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Telephone $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Travel $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Utilities $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Wages Employment Tax & Exp. $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Wages Employee Benefits $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Misc 1 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -Misc 22 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

Total Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

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Other Cash Out Flows

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Managed Cash Flow - Inflows

Start-Up Normal COVID 19 COVID 19Beginning Cash Balance $0 $0 $0

Income Start-Up Cost

INC

OME

STM

T

Sales 1 $ - $ 19,000.00 $ 1,500.00 $ 1,500.00 Sales 2 $ - $ - $ - $ -Sales 3 $ - $ - $ - $ -Sales 4 $ - $ - $ - $ -

Total Sales $ - $ 19,000.00 $ 1,500.00 $ 1,500.00

Other Cash In BALA

SHE

Owner Investments $ - $ - $ - $ -Term Loan Proceeds $ - $ - $ - $ -Owner Personal Loan $ - $ - $ - $ -

Total Other $ - $ - $ - $ -

Total Cash Available $ - $ 19,000.00 $ 1,500.00 $ 1,500.00

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Expense Outflows

Expenses Normal COVID 19 COVID 19

INCOME

STATEMENT

COGS - Labor $ - $ - $ - $ -COGS - Material $ - $ - $ - $ -Interest Expense - Term Loan $ -Advertising/Marketing $ - $ 300.00 $ 300.00 $ -Computer and Internet $ - $ 150.00 $ 150.00 $ -Dues & Subscriptions $ - $ - $ - $ -Insurance - Business $ - $ 200.00 $ 200.00 $ -License & Permits $ - $ - $ - $ -Meals & Entertainment $ - $ - $ - $ -Merchant Fees $ - $ 418.00 $ 33.00 $ 33.00 Office Supplies $ - $ 150.00 $ 150.00 $ -Postage and Printing $ - $ - $ - $ -Professional Fees $ - $ 150.00 $ 150.00 $ 150.00 Rent/Lease $ - $ 2,500.00 $ 2,500.00 $ -Repairs/Maintenance $ - $ - $ - $ -Taxes - B&O $ - $ - $ - $ -Telephone $ - $ 200.00 $ 200.00 $ -Travel $ - $ - $ - $ -Utilities $ - $ 250.00 $ 250.00 $ 250.00 Wages Employment Tax & Exp. $ - $ 9,046.26 $ 9,046.26 $ -

Total Expenses $ - $ 13,364.26 $ 12,979.26 $ 433.00

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Other Outflows, Ending Cash and Profit and Loss

Total Expenses $ - $ 13,364.26 $ 12,979.26 $ 433.00

Other Cash Flow Adjustments BALANC

E

SHEE

TOwner Draws $ - $ 4,500.00 $ 4,500.00 $ 1,000.00

Owner Benefits $ - $ - $ - $ -

Term Loan Principal Payment $ -

Total Other $ - $ 4,500.00 $ 4,500.00 $ 1,000.00

Total Cash Outflow $ - $ 17,864.26 $ 17,479.26 $ 1,433.00

Ending Cash Position $ - $ 1,135.74 $ (15,979.26) $ 67.00

Profit (Loss) $ 5,635.74 $ (11,479.26) $ 1,067.00

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Take Care of Yourself

• Finally, take care of yourself. Find things to help you de-stress. Go for a walk. Enjoy a book. Exercise. Do springyard work. Do something other than worry about yourbusiness and watching the news. Be aware you are nodoubt projecting your stress to your entire family.

• This situation to shall pass. Historically, after a recessionthere is a period of economic prosperity. Thosebusinesses that survive a recession are generally in agood position to take advantage of this and grow.

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Communicate with the People You Owe

• Talk to the people you owe. Let them know if you arenot planning to pay them. They will want to know whenyou will be able to pay again

• Be honest about your situation• Try to keep your word• You may have to rotate who you are paying each month• Be aware that you will need to catchup as soon as you

can cash flow it! Not before. Do not make promises youcan not keep

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Find the Nearest Advisor:https://wsbdc.org/contact-an-advisor/

https://wsbdc.org/contact-an-advisor/

strategies for business survival + cash flow forecasting...2020/04/17 · strategies for business...

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