When Cash Gets Tight, Know Your Options

By: Alex Wunderlich

Small businesses are under a tremendous amount of strain right now. Lost revenue, decreased productivity, supply shortages, and inboxes flooded with “how we’re responding to COVID-19” emails…as if we asked…

But in all seriousness, there will be some trying times ahead. Clockwork is a small business, and we come from small business families. Our communities are literally built around small businesses, and we want to make sure they have the tools and resources to help them make it through.

If you’re a small business owner or advisor, and you’re feeling the financial impact of COVID-19, here are a few things you should be doing right away.

1) Understand Your Financial Position

One of the first things you should do is update (or build) your weekly cash flow forecast. Make sure it’s accurate, uses the most up-to-date information available, and incorporates a couple of “what if” scenarios based on possible outcomes. 

There is quite a bit of uncertainty right now, but getting a handle on your current cash situation, and how it could change week-to-week, is a critical starting point to formulating an action plan. You’ll want to look for future periods when cash will be dangerously low, or run out entirely, and figure out how much money you’ll need to keep the lights on.

Your accountant should be able to help, but if you have any questions you can also get in touch with our team. We live and breathe cash flow forecasts, and we’ll get you squared away.

2) Know Your Options

There are many strategies for optimizing cash flow, like accelerating collections, or delaying bill payments, but when things are this extreme, you may need some outside financing to bridge the gap. As long as your business wasn’t already tanking before the pandemic hit, local banks or investors should be viable sources of capital to keep you afloat. However, you’ll need to be careful to ensure you don’t structure a deal that will hurt you in the long run. 

Trust your numbers. Don’t take on more funding than you need, or more than you can ultimately pay back. Debt often comes with covenants, and the more money you take, the more restrictions you’ll need to deal with. If you’re getting a loan, review the terms carefully to ensure you won’t break any covenants in a prolonged period of distress, and also that you won’t be restricted from operating normally when things recover.

Additionally, if you’re seeking an equity investment, be wary of any investors who ask for too much ownership or operational control in your company. Economic distress often leads to predatory investment behavior, and the last thing you want to do is give away your company for a quick buck.

3) Consider Applying for an SBA Loan

For those businesses hit particularly hard, the SBA Economic Injury Disaster Loan Program is another great source of emergency funding. 

The SBA is working to provide low-interest loans to small businesses and nonprofits that have been severely impacted by COVID-19, and they can provide small businesses with working capital loans of up to $2 million to help overcome a temporary loss of revenue.

Here is some information on who is eligible, and how to apply: https://www.sba.gov/disaster-assistance/coronavirus-covid-19

And here is some additional guidance from the SBA: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

4) Stay Focused

This is an evolving situation, and things are changing day-to-day. Your cash flow forecast needs to be updated constantly so you’re not caught off guard and you can quickly adjust your plans with the latest information. Even if you get some funding, you still need to keep a close eye on your financials to make sure you don’t trigger any covenants or waste the capital when you need it most.

It’s ok to check the news a little more than normal, but your primary focus needs to be on the things you can control, so you’re not missing out on critical business information. Cloud-based tools like Clockwork have made this easier than ever, by providing real-time financial projections and insights, but they won’t do you any good if you’re not using them.

These are crazy times, but we’ll all get through it together. Clockwork will be sharing more resources in the coming days, and our team is always here to help with any of your forecasting and cash flow management questions. Use the chat icon on our website, or email us at hello@clockwork.ai and we’ll take care of you.