Navigating Cash Flow Amidst COVID-19 and Beyond

“Wisdom is knowing what to do next. Skill is knowing how to do it. And virtue is doing it” – David Starr Jordan
Read on for guidance on your next steps:

As you navigate the business challenges resulting from the pandemic, you may have been funded for the PPP loan and/or received some of the EIDL grant/loan money. I hope that if you needed it, you were funded. The business owners I am speaking with are faced with the good news of receiving the money and the bad news that businesses are still sheltered in all the way through June in some states. What now? How do you work towards qualifying for the PPP loan forgiveness if you only have eight weeks to do so and you still aren’t open for business? And more importantly, how do you protect the health of your business beyond that timeframe?

Examine your PPP Loan Forgiveness

If you received a PPP loan, you should already have a plan in place for how to best utilize the money. Explore what are eligible deductions that you will be allowed to take when you file for loan forgiveness. It’s important to understand now what the eligible expenses are and how will they be calculated. Collaborate with your cash flow specialists, CPA and banker who helped to get the loan funded. Working with your team of subject matter experts will serve you well.

Become One with Your Cash Flow

We don’t mean to imply that you have been ignoring the importance of cash flow until now, but the stakes have never been higher and it’s crucial that you understand the ins and outs as well as the possibilities for what might happen. Consider running scenario analyses on your cash flow forecast to determine how it affects short-term liquidity requirements. This can help you determine your company’s ability to pay off short-term liabilities, allowing you to plan with precision. You’ll want to consider that if you did receive PPP funding, that will likely not sustain you past a few months. Once you can manage these components, then you are ready to project what will be needed in order to sustain your business. Resist the urge of going back to your old ways of managing cash flow with more debt.

Be Vigilant on Cost Control

Cost-cutting measures can often serve as life rafts in turbulent times, but it’s important to weigh the benefits before slashing expenses. It may make sense to reduce your company’s travel budget with the increased use of video conferencing. Many major events and meetings have been postponed until next year or have shifted to a virtual platform. Also consider examining non-essential costs like online subscription services or office snacks. On the flip side, it likely doesn’t make sense to eliminate your bookkeeper. Yes, there is a cost associated with that resource, but is it wise for you to take on that extra responsibility right now? Cut the costs that cause inconvenience or annoyance, not those that are critical to the health of the business’s health functionality. Too, make sure that the measures you’re looking to cut don’t actually bolster revenue in a way that may not be readily apparent on the surface.

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Centennial Revenue Management has tools to help, including templates and spreadsheets to help organize your PPP usage and monthly forecasts. Contact me today at drobinson@centennialrevenuemanagement.com or at 303-835-7992.

A CFO/Cash Flow Expert can help you identify the important components of your cash flow arena that need special attention in the next 30-60 days. In order to be proactive – not reactive – it’s necessary to understand what your financial position was going into the pandemic. Were you already having a cash flow problem? What was your starting cash balance going into April, for example, before you received any funding? What were your average revenues coming in against the average outlay of cash going out (including debt servicing)? All of these questions tell the story of how your business was managing cash flow before COVID-19, and will help you to navigate the future of your business.

Find Your Cash and Break Free of Fear

Right now, the business owners I speak to are panicked.

I hear from them that they don’t have control over their financials. Perhaps, they have been delegating bookkeeping to an admin on their team. And when times are good, they don’t worry about reviewing reports.

I hear from them that they don’t have control of their future. There is no set date for when the country will reopen. Many wonder what their new normal look like.

I hear from them that they’ve lost control over their incoming revenues. They’re not open for business or doing very little. Their clients may be canceling contracts or unable to pay their bills, and their lead funnel may be dwindling as people prioritize saving overspending.

But there is a secret I share with my clients that I would like to share with you, too. You can control your outgoing cash. You can control your cash flow.

I recently had a conversation with a business owner who had many of the fears and doubts outlined above. The fear was powerful and palpable, and it was blocking him from seeing the facts. Going into COVID-19, he didn’t have an understanding of his finances, so when doors closed, he assumed the money was gone. And that made him operate from a place of fear.

To get out of that fear mindset, he participated in my financial education webinar, which helped him get a 360-degree view of his current financial picture. He then did a one-on-one SWOT session with me to analyze his financial strengths, weaknesses, opportunities and threats.

This SWOT session is where the truth comes out – the good, the bad and the strategy. We tell ourselves so many stories that it can be difficult to see what is really happening. And when it comes to cash flow, clarity is key.

Based on our session, it was clear that he did indeed have money. What he didn’t have was revenue. And when I presented the cash flow forecasting model, he could see the possibilities of not running out of money.

That meant that what we could control was his outflow of cash. My advice was to:

  • Contact his bank and inquire about loan deferrals on business debt
  • Ask his landlord about a rent deferral
  • Talk to his vendors to see how far they would bend to help slow down money going out
  • Follow up on invoices that were set to come in soon from his accounts receivable

Those four ideas exposed tens of thousands of dollars that are now available to float his business until he could be funded with the PPP loan.

The bottom line is this: the conversation changed from a fear-based, reactive mode of “I don’t have money” to I have money and can control the outflow.

You too have money and you too can control the outflow. I invite you to schedule a consultation with me today to explore your financial situation, find your cash and break free of fear.

How-To Guide: Tax Season

Your Guide to Managing Cash Flow and Holding your CPA Accountable During Tax Season

As the April deadline draws closer and closer, you might be having unpleasant flashbacks of tax seasons past. Specifically, you may be remembering the unpleasant surprise of discovering you owe much more than you had anticipated – not to mention the unpleasant and complicated fallout. While horror stories abound, it is possible to meet tax season head on with the proper planning and forward-facing perspective. In addition to being completely transparent with your CPA and financial advisors, there are other ways to ensure you’re fully prepared for that deadline.

  • Consider Corporate and Personal Tax Returns
    Many small businesses, including dental and medical practices, are filing their tax returns as S Corporations. This allows the owners to pass company income, losses, deductions and credits on to their personal returns. Before you sign your tax return, have your CPA explain how your business income from net profits/losses, W2 wages and dividend/owner’s draws affects your personal return. If you are taking owner’s draws, ask your CPA to confirm that you have the tax basis for taking them. This will help minimize the risk of calling attention to an audit by the IRS.
  • Don’t Forget Your First Quarterly Estimate
    For many small business owners, April 15th is not only the deadline for personal taxes, but also for quarterly estimates (with the next estimate due on June 15th). Don’t forget this important overlap, as you can be penalized for late estimate submissions. Learn more about quarterly estimates, including due dates and payment instructions, on the IRS website.
  • Plan Ahead
    Always remember that your CPA is your tax compliance expert, but you should look to your CFO for help with managing cash flow requirements. Ask your CPA for a projection of the current year’s tax liabilities and have them give you quarterly tax estimates when you sign your tax return for 2019. These estimates can then be used to forecast and model future cash requirements.
  • Use a Forecasting Tool
    Cash flow forecasting software such as Total Cash Clarity™ can help you project up to 8 months into the future. They will help you see shortfalls in projected cash that may be needed when you have to pay your estimates. These kinds of tools can help manage time as well as money, and often include access to supplementary information and materials that can help you gain control of your finances.
  • Don’t Silo Your Specialists
    Be proactive in managing your meetings with your CPA and make sure your CFO is included. Don’t silo your CFO out of tax planning meetings. Try setting a meeting with both parties in June or July with the intention of finding out how much money you’ll owe and create strategies to get more money in your pocket.

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Tax season can be a stressful time for business owners, but much of the anxiety can be eliminated through diligent and practical planning. If you have more questions about navigating tax season or wish to learn about our outsourced CFO service, give us a call at 303.835.7992.

Time to Get Naked

It’s time to get naked – but before you go reporting this post for inappropriate content, hear us out. We’re only asking you to get undressed financially. What this means is that you operate with complete and unflinching transparency when it comes to sharing financials with the relevant specialist (e.g., accountants, financial advisors, outsourced CFOs and cash flow experts). These experts are equipped to help you strengthen your finances, but they can only do so if they understand them. Without your total honestly, it hinders the expert from doing their job and effectively wastes your money on a service that cannot reach its full potential. Don’t worry, it’s not these experts’ jobs to judge you, your choices, or your expenditures. It’s their job to work for you to make your business as great as it can be.

We know it’s easier said than done, but trust us: it’s worth it. It’s also important to go into business with a financial specialist that you can trust. Trust is a two-way street, and if you can’t pave both lanes then your business partnership isn’t likely to have a bright future.

Finding a trustworthy advisor
This is an important first step in building a relationship that’s not only long-lasting, but maximizes revenue, savings, cash flow efficiency or any number of other financially oriented goals. Here are a few things to look for:

  • Experience
    This may seem like a given, but it’s an area that is all too often overlooked – especially when it’s hidden behind a flashy sales pitch or tales of recent successes. Ideally, you’ll want someone with decades-long experience. This can say a lot about a person, including A) they’re good enough to have stayed in business this long with the same name B) they’ve seen trends come and go and understand best practices C) they know how to work with all kinds of people and how to approach each unique relationship.
  • Multiple Roles
    Someone who’s held multiple roles has an elevated understanding of a business’s financial standing and knows how to view it from multiple angles. They are better equipped to think critically than somebody who’s only looked at finance through the same unmoving lens for their entire career. These well-versed individuals can think on their feet and offer valuable and unique insights.
  • Has Operated a Successful Business
    This is easy to check, as any successful business operated by a financial specialist will be prominently displayed in either their website bio or LinkedIn profile. It’s also one of the most straightforward litmus tests of their abilities – real-life proof of their operational abilities.
  • Public Speaking
    When they have public speaking on their resume, specifically as a guest speaker at events and seminars or on podcasts, it tells you that they not only know what they’re talking about, but that business leaders trust them enough to risk their reputations by inviting them to speak. It means that their knowledge has value to others, knowledge that is actively sought after.

CPA is not your cash flow expert!

In my last newsletter we highlighted the possibilities of adding value to your team of subject matter experts by surrounding yourself with both a CPA and a CFO or Cash Flow Consultant to help you optimize cash flow and maximize profitability.   Your CFO should be helping you with proactive financial strategies.  The CPA, your tax compliance expert, takes the opposite approach, viewing finances from the rearview mirror as a reactive strategist. I find it unfortunate that we business owners are usually groomed to manage our businesses from a tax perspective.  What if you combined the financial conversation of how much taxes will I owe this year with how much cash do I need to reserve now to  pay those taxes?

My Dirty Little Secret around working with CPA’s is that you can be profitable and have a cash flow problem. A common circumstance is when the business profits pass through to the owner’s personal tax return and the owner owes a large sum of taxes but doesn’t learn that fact until the taxes are due in April. This scenario confirms another Dirty Little Secret: The CPA is your tax compliance expert—NOT a cash flow expert. You can avoid these kinds of cash flow storms by considering the value of working with both subject matter experts; one to answer the question of “What is my tax liabilities projected to be for this year?”.  The other to help you plan for cash requirements, and both working together to get more money into your pockets.   

A CFO Can Help You Ensure You Have the Cash Flow You Need – Stop Surprises

Too often, business owners put the role of the CFO on themselves. An outsourced CFO can help save you time & money, get financial reporting done, assist you with strategy and cost less than you think! Those combined benefits can provide powerful value to your business. That value doesn’t only impact your bottom line but also your credibility and business reputation. Don’t make the mistake by assuming your CPA can also add value as your CFO. Managing financial strategies takes multiple perspectives. Tax benefits, maintaining adequate cash on hand balances, and understanding your financials from a CEO and CFO’s perspective is much different from that of a CPA’s.

When the SBA (Small Business Administration) reports that 50% of small businesses fail in the first five years, one of the primary reasons is cash flow management. Your CFO can be vital to your success. They can cover your potential blind spots. They follow the money and look into the future! They also make sure you have the cash resources you need. Most small to mid-sized businesses don’t need a full-time CFO. The benefits of having this role on your team can include advocating with your CPA for better tax benefits or debt strategies with your banker. A trusted outsourced CFO can allow you to remain financially competitive while allowing you and your team to do what you do best.

A cash flow pundit like me serving as your outsourced CFO can conduct analyses of your expenses and profits, assist you with getting out of a cash flow crunch and prevent a cash flow storm from occurring. Whom better than someone who has been in your shoes as an owner and personally faced embezzlement from her own CFO? Get the outside eye perspective with a proven subject matter expert!