Navigating the Cash Flow Crunch

March 18, 2020 - 5 minutes read
Kristi Kozubal Michigan SBDC

Webinar Recap by Kristi Kozubal, Business Growth Team Manager

Watch Navigating the Cash Flow Crunch On-Demand here!
In our most recent webinar on navigating the cash flow crunch caused by COVID-19, SBDC Business Growth Consultant Brooks Kindel shared the most up-to-date information available about the SBA Economic Injury Disaster Loans (EIDL) as well as some broader insight to help you navigate the cash flow crunch created by COVID-19.  Here are the takeaways:

  1. Conserve Cash Reserves.  Taking a page from the book Extreme Ownership by former Navy Seal Jocko Wilkink, Brooks set the tone with the advice “Prioritize and Execute.”  That means you must take a critical look at all of the demands on your cash and assess where they fall on the spectrum between “mission-critical” and frivolous.  Establishing a priority for payments is relative to the legal and practical consequences of non-payment.  For example, holding back employee compensation for work they’ve performed is punishable as a crime, whereas not paying rent or unsecured debts like credit cards will not cause an immediate hardship.  Your assessment might look like this:
    1. Category A – “mission-critical” expenses: on-going payroll, taxes & insurance premiums
    2. Category B – expenses essential to serve continued sales: key suppliers & contractors
    3. Category C – everything else including long-term debt, rent & capital improvements
  2. Update Your Accounting Records & Tax Returns.  To make informed decisions and to secure any debt relief you may need, whether from your existing lenders or from the SBA EIDL, you will be required to provide current business and personal financial statements as well as your 2018 and 2019 Income Tax Returns.  As of the date of this webinar, the Treasury offers 90 more days to pay taxes, but you must file by April 15. See the US Treasury website for the most up-to-date information.
  3. Analyze your Short- and Long-Term Cash Needs.  Regardless of the tax consequences, you should be getting a firm grip on your current financial situation, how it compares to this same time period last year, and what your financial picture may look like if this crisis lasts another 4-6 months, or even longer.  This is the measure of your “economic injury” or the damages you may suffer as a result of this disaster.  If you need help with this process we are here to help you.  Just submit a request for consulting today!
  4. Communicate with Your Lenders.  The SBA EIDL is not the only avenue to relief from the financial impact of this crisis.  Many lenders and other business service providers are offering loan extensions, renegotiating payment terms, and otherwise changing their terms and policies to serve you in this time of crisis.  Talk to your relationship manager and get in touch with other local lenders to discuss your needs as soon as possible.  They may be able to provide you with a lower cost of capital in a shorter timeframe than other emergency resources.
  5. Call your SBDC consultant & stay tuned for news of the SBA disaster loan app by subscribing to updates on our website.

Remember, your business is unique and there is no “one-size-fits-all” approach to crisis management.  While you may be faced with important decisions, this is not the time to act on panic or fear.  Your decisions should be data-driven and balance your heart’s desires against your bottom line and the survival of your business.  The SBA Disaster Loan program is a debt financing program that should be undertaken with the same degree of caution as any other loan you might consider – with a thorough analysis of your needs and ability to repay the loan.  Attend the rest of our COVID-19 Webinar Series and Tune in to SBAM’s Facebook Live Series at 3:00 daily.

And finally, stay calm. 

Assess. Prioritize.  And Execute.