How do you safeguard the financial stability of your company in uncertain times? In this guest post, Jody Grunden, Co-Founder and CEO of Summit CPA Group, shares strategies on sound decision-making, communication and financial planning.
Summit CPA Group is a distributed accounting firm with a non-traditional approach. Their team of CPAs and accountants provides professional virtual CFO services and 401(k) audits for companies all over the United States. Author of Digital Dollars and Cents, Jody is passionate about changing the way people think about accounting, and helping digital companies create a financial roadmap to success.
While the coronavirus continues to spread and information about the pandemic evolves, we have seen firsthand how severely our society has been impacted. As business leaders, we have also seen how much this pandemic has affected the business community. Small businesses are experiencing the effects of preventative measures, such as social distancing, which have translated into a slowdown in cash flow and less earned revenue. More specifically, the bottom lines of businesses operating in the events and travel industries are suffering as they refund deposits and fares.
While the section of the business community that services consumers directly is currently grappling with the public’s reaction to the spread of the coronavirus, many business-to-business service providers have also been affected. Often B2B companies rely on the financial stability of their clients to generate income, in that their clientele must have the means to employ their services. During times of turmoil, whether it be a pandemic or a recession, it’s not uncommon to see client lists shorten as more businesses forgo employing services to lessen their expenses.
What’s important to remember is that these times are temporary. Although your business may be going through a difficult period in light of the pandemic, the key lies in learning how to survive the current situation. At Summit CPA Group, we have put together a few steps you can employ that will help ensure the financial health and well-being of your business during these challenging times. Those steps are listed below.
1. Don’t Panic
While this step may seem simple enough, it can prove to be very difficult as the situation with the coronavirus continues to change, and you see how the news is affecting your business income. However, it is imperative that you keep a cool head. During this period, try to refrain from making any rash business decisions and rely on the effective decision-making process you already have in place as needed. Also, if you have already worked through similar scenarios and made decisions on what to do during this heightened situation, act on those decisions accordingly.
2. Communicate Openly with Your Employees & Clients
It’s also vital that you are transparent about how your company is responding to the situation. Sharing relevant information on how your company has been affected and is responding to the pandemic with your staff and clients is crucial. This kind of communication helps both parties feel informed and confident in your company’s abilities to navigate the challenges of the situation at hand. Reassuring your team and your clients can also prevent them from making any rash decisions of their own, which could, in turn, negatively impact your business. Also, maintaining open lines of communication shows that your company is facing this crisis alongside your counterparts, thereby fostering a sense of community.
3. Reduce Your Expenses
It’s no secret that your business income has most likely been impacted during this time, which is why cutting down your costs where you can is key to ensuring your business’s future. In short, the less money that goes out the door, the more cash you’ll have on hand to continue business operations. To reduce your expenses, we recommend running a lean operation, which includes addressing any inefficiencies in your current operations. Doing so will help you reduce the cost associated with conducting business daily. Moreover, we also recommend pausing any non-essential spending. You may also want to look into temporarily adjusting distributions or salaries to reduce your expenses further.
4. Prioritize Using Cash to Cover Your Costs
During times like these, having enough cash on hand to cover your expenses for a few months is paramount. We recommend having 10% of your annualized revenue in cash, but if you do not have that much set aside, reducing your expenses will be even more of an essential step. Either way, we suggest using the cash you have on hand to cover your costs during periods where you are experiencing cash flow issues. While you can also look into using your line of credit if you have one, using cash will ultimately help with your costs once this trying period is over since you will not have to pay interest on cash spent.
5. Tighten Your Accounts Receivable Timeline
When it comes to invoicing your clients, the turnaround time between the invoice being sent out and the receipt of payment can make a huge difference in your bottom line. The following chart illustrates the difference between a 60-day accounts receivable cycle versus 45 days versus 15 days. Adjusting your payment expectation and strengthening your collection policy can increase your revenue from negative $30,000 at the 45-day mark to having $50,000 in the bank with a 45-day cycle. With a 15-day cycle, you can increase your revenue by $280,000 in just four months.
6. Take Advantage of the Extended Tax Deadline
The U.S. government has postponed the April 15 tax payments by 90 days for most Americans. Payments can be deferred up to $1M for individual taxpayers and $10M for corporate taxpayers until July 15. Taxes or an extension will still need to be filed by April 15, but if you’re going to owe taxes, you will be able to hang on to that money a little bit longer.
Share Your Questions with Us
As we try to protect ourselves and our communities from the coronavirus, it’s also essential that we safeguard our businesses and the livelihoods of those working for us. These are taxing times, but if you plan and act strategically, your business will have that much greater of a chance of surviving any financial setbacks the pandemic presents. Furthermore, following the steps provided here will only further those chances. Looking for more information? Share your questions with us by posting a comment below.