How to Manage Cash Flow and Liquidity during a Crisis

Organizations around the country are currently facing extraordinary challenges due to the COVID-19 pandemic. During any period of crisis like this, businesses need to be primarily focused on survival. This is especially true for small businesses because they usually don’t have large cash reserves. As a result, many small businesses fail during times of crisis. But they could have survived with proper planning.

After ensuring the safety of you, your family, and your employees, it’s crucial to safeguard your company’s liquidity. Generally, when we plan for the future, we think long-term. During a crisis, you must focus on short-term survival. Anything using your short-term liquidity that is nonessential should be put on hold immediately. Maintaining or increasing your company’s cash flow is critical. You should also be in contact with your lenders to find out what loan relief options are available should they become necessary.

We have put together some business survival tips to help you and your company during these challenging times. We are here to make the complex simple as we all navigate this situation together.

Start by Setting up a 13-Week Cash Flow Projection

The 13-week cash flow model is a fundamental tool for business leaders, as it offers the most detailed view of the money flowing in and out of your organization.

You don’t need to hire experts to do this for you. Save your cash and create one in-house. It can be as simple or complex as you’d like, depending on your preferences. They are usually prepared in Excel, and you can do a quick Google search for some template options.

Preparing the analysis will give you an idea of where your company will be over the next 13 weeks, giving you critical insight into where your cash comes from, and when, and what it is needed for, and when. You can then make important management decisions based on the analysis to protect your cash position.

 Some actions that you might consider taking include:

• Negotiating with your vendors for extended payment terms
• Re-focus your cash outflows by determining which vendors are essential and nonessential
• Pressing pause on your recruitment efforts
• Working with your clients to understand the new collections cycle

Keep in mind that due to the unprecedented nature of this pandemic, typical cash management tactics may not be sufficient. Your vendors may be looking to accelerate your payment cycles, rather than extend them. Your clients may be looking for some relief and extended payment options, too. Make sure your rolling 13-week projection reflects your realistic, current expectations. Your projection should also be revised as circumstances change. 

This projection is not only a valuable tool for you to use to manage your company through this crisis, but it can be shared with your lender when asking for relief or modification of payment terms on your existing loans.

Coronavirus Emergency Loans for Small Businesses

As part of the CARES Act recently passed, the Federal government is opening up $350 billion in loans that fall under the Section 7 of the Small Business Administration (SBA). The one garnering the most attention is the Paycheck Protection Loan that can provide a loan of up to 250% of your monthly payroll. It has a ten-year maturity and caps interest at 4%.

There is also a separate section of the CARES Act that calls for a portion of the aforementioned paycheck protection loans to be forgiven on a tax-free basis.

We are working hard to “flesh out” the intricacies of this significant legislation. But while that is being done, we wanted to pass along this excellent resource linked below from the U.S. Chamber of Commerce.

Coronavirus Emergency Loans: Small Business Guide and Checklist

Making use of these loans can help protect your cash flow. We encourage you to reach out to your bank immediately. All approved SBA lending institutions will be slammed with customers wanting to take advantage of this. One bank will not be able to do more than another. From our understanding of the bill, the amount they will be able to loan is a formula. Therefore, the first bank that can help is what you should be aiming for.

We Are Here to Make the Complex Simple

We have assembled our COVID-19 Resource Center to help you through these times. We are continually adding and updating these resources, too. Be sure to check back often, and please don’t hesitate to contact us with ANY questions that you may have along the way.

MGA is here to work with you through these challenging times. And even through all of the uncertainty, we will work to make the complex simple.