Distressed Business Tactics: Financial Planning
Hi everyone, it’s Rhett at Basis 365 Accounting.
Here’s another video in our Tactics for Distressed Business series.
One of the first things to do during a crisis is to determine your financial position. Review your cash flow, cash reserves, and credit availability. The following tips will ensure your business has a plan and the cash to execute on that plan.
Run financial scenarios for good, bad, and ugly.
Determine what targets are needed for each scenario. These may be scenarios based on revenue changes to plan lay-offs or furloughs, reducing rent, assessing a new line of business, or an acquisition. This type of planning is beneficial for business owners to understand their targets to accomplish their goals. These scenarios also may be useful to show to a banker or investor to show you have a plan, and that you are on top of your numbers.
Develop a 13-week cash flow plan.
Cash is critical and can sometimes get lost when looking at accrual financial statements. Map out expected cash receipts and plan out expenditures to understand how cash will trend. Determine what can be spent, when it can be spent, and how much money should be pulled from a line-of-credit or loan to apply for.
Hoard cash during uncertain times as a business.
Consider taking out loans or maxing out your existing lines of credit so you have cash on hand. You may need this to take advantage of reduced product costs if you buy in bulk or acquire a struggling competitor you might not have normally acquired.
Defer loan payments or temporarily switch to interest-only payments.
Show the bank your scenarios to gain trust. Come in prepared. Show your intent is to pay, but you need to stay in business to do so. Although the bank may not be happy to have this conversation, the fact you are having this conversation should show them you are doing the right things to ensure the business survives and ultimately pay its debts.
Apply for emergency loans when available.
We’ve talked about this a lot already but if other lender options don’t pan out, government loans may be there to help. Just make sure you are intending to use the funds for what the government loan is designed for.
Financial models can be challenging to build. Work with your accounting team to help map out your good, bad and ugly plans.
Need more advice? You can view the complete tactics guide here: