The waters might be choppy but you’ve managed to keep your business afloat. So far so good. But how can you keep it from capsizing when no one can predict the conditions up ahead?

After 30 years in the Troubled Business Industry, I thought I had seen it all.  And even though I don’t have experience helping businesses navigate through a global pandemic, I do know that in any crisis, even when things seem completely out of control, the one thing you CAN control is your checkbook; who you write checks to and for how much.

But first, it’s important to remember that you can only control what you can measure.

In crisis or not, a lot of companies make the mistake of operating by the “What we got” method, basing decisions on their bank balance at any given moment. This method is only about one thing: what cash a business has on hand right now. But this is dangerous because it only tells them where things stand at that given moment and relies strictly on intuition to do the forecasting – too risky for anyone to attempt in such volatile times.

Instead, I suggest the far more strategic “What we expect to get” method, whereby decisions are based on being able to forecast what’s coming in and what needs to go out.  But remember, it’s all about cash. In a downturn like this, non-cash items considered in an accrual method don’t matter.

It almost seems too simple, but when a company is in distress it’s often the most obvious solutions that are overlooked.  That’s why I always ask clients to take a deep breath and get back to basics by breaking it down to just two questions:

 

  1. What are our expected Cash In-Flows? Examples:
  • payments for outstanding invoices
  • rental income
  • management fees and other income
  • borrowings from a line of credit from your bank
  • borrowings from government programs
  • contributions by owner(s) and partner(s)

 

  1. What are our expected Cash Out-Flows? Examples:
  • payroll
  • payroll taxes
  • employee benefits
  • sales commissions
  • supplies and materials
  • out-side /contract service payments
  • rent payments
  • insurance
  • interest and principal payments on debt

 

Now, it’s just about doing the math. You may end up with a surplus, or possibly a deficit.  My next article in this series will deal with what to do in either case.  But like I said in the beginning, you can only control what you can measure.  So, it’s critical that you go through this simple exercise so you can operate with your eyes wide open and create a plan for moving forward.

This Cash-Flow Forecast spreadsheet is a great tool for helping you to get and stay on top of what cash you really have to work with.  This, along with whatever type of calendar you use, marked with due dates of all your fixed cash-in and cash-out payments will enable you to make smart decisions about who you write checks to, and for how much.

During this critical time, having a team of seasoned professionals who understand how to rapidly and successfully triage any situation, ask the right questions and build a corps of experienced profitability advisors to create and carry out a solid plan, can make all the difference between solvency and bankruptcy.

New Growth Advisors has been providing consulting services to companies with annual revenues ranging from $5 million to more than $1 billion, and has been providing proven turnaround consulting, interim management and management support and fiduciary services for hundreds of clients in more than a dozen states for two decades. Feel free to click here if you have any questions regarding how your company can get through the current crisis and look forward to the opportunity to help you in your efforts to weather the storm.

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