The Dayton Daily News recently published the headline “Next few months likely do or die for retail stores”
(February 1, 2021). While the article was about retail, the underlying causes, pandemic restrictions, limited
consumer confidence, etc. will impact many other industries. There are articles just like this one, every day in
local, national, and international publications.
Yes, there is good news out there. The COVID vaccine is here, but when will the vaccine rollout to everyone? Yes, there is a second round of the Paycheck Protection Program (PPP), however will it be enough for your business? Will your business survive the next six to nine months? Do you have enough cash? What is your plan? Have you
stress tested the plan?
Knowing your needs in advance is critical. Will you be able to cover payroll? Will you be able pay vendors? Acquiring cash when you are out or close to being out of cash is difficult and very stressful. You probably cannot reach out to your bank and get immediate funding. Remember that bankers do not like surprises. Alternative sources of cash can take time to find and are very costly. Beware that reducing costs and resources without a well thought out plan could be fatal.
We recommend that you start your plan with a thirteen-week rolling cash projection. The 13 week rolling cash projection is for you to understand your cash position and will support sound, confident decision making. A spreadsheet is the perfect tool to use to create the cash projections. Start with your current cash balance, add in projected cash receipts, and planned expenses. Also add in any anticipated equipment and inventory needs. Do this for each of the thirteen weeks. If you have a line of credit or access to other capital resources, factor those into the projections.
Once the projection is complete it is time to stress test. Look at your assumptions (timing of receipts, planned expenditures etc.). Run “what if “scenarios for delays, reductions and/or increases in those assumptions. Now develop a plan to address your needs. Update this projection weekly. Compare the actual results each week to the plan. This comparison will help you improve your projections skills. The projection is a “living” or “rolling” document so add an additional week to replace the completed week. This tool is critical to your success.
Remember, no one plans to fail but those who fail to plan, fail!
Mark Clower is an Area President with FocusCFO based in Dayton, OH.