5 Financial Tips for Reopening Your Business
Are you financially prepared to reopen your small business? After an extended period of closures to reduce the spread of coronavirus, businesses that survived the economic downturn are starting to reopen. In this article, we’ll review financial tips to help your small business stay in business through the next financial crisis.
1 | Avoid liability by complying with health and safety regulations
Governments have developed requirements for business closures and reopenings to help curb the spread of the deadly coronavirus. If your business has been closed for an extended period, you’re probably already running low on cash. The last thing you need is to face costly fines, penalties, or lawsuits for non-compliance. Worse, non-compliance could put the lives of your employees and customers at risk.
Research what is required of your business. Do your employees need to wear masks? Are you required to post signs about coronavirus? Must you implement touch-free payment systems? Change your business practices as required to keep yourself, your employees, and your customers safe and avoid unnecessary expenses.
2 | Don’t lose sight of deferred expenses
If you’ve deferred payments to vendors and lenders, don’t lose sight of the fact that you may owe a large sum of money in the future. Deferring payment allows you to more time to pay your bills; it doesn’t eliminate your obligation to pay them. Make a list of all the expenses you’ve deferred and include them in your cash forecast. You don’t want to be caught by surprise by large lump-sum payments. If you’re worried that you won’t be able to pay your expenses by the deferred due date, contact vendors and lenders now to make alternative payment arrangements. They may be willing to make further accommodations because late payment is better than no payment at all.
3 | Understand Payment Protection Program loan forgiveness requirements
If you received a Payment Protection Program (PPP) loan to help you maintain pre-pandemic staffing levels, keep careful records of how you use the funds. PPP loans are fully forgivable (you don’t have to repay) if you use the funds for approved purposes. At least 60% of PPP funds must be spent on payroll-related costs within 24 weeks of receiving the loan, and no more than 40% of the funds may be used for rent, mortgage interest, and utilities. To apply for loan forgiveness, contact your lender. You’ll be asked to provide evidence of how you used the funds.
Editor’s note: the PPP information above was last updated on June 9, 2020 to reflect loan forgiveness changes outlined in the Payment Protection Program Flexibility Act.
4 | Update your cash projections
Your bank account balance may be sufficient now, but what will it look like in six weeks? Create a cash forecast that lists all weekly inflows and outflows of cash. A cash projection provides crucial information about when you may experience a shortfall. Knowing when cash will run low helps you act now to change your future financial circumstances.
5 | Start preparing for the next financial emergency now
Coronavirus has put a spotlight on the financial weaknesses of small businesses. Almost all of us have seen one or more of our favorite small businesses fail during the pandemic because there wasn’t enough cash to continue operating. Here are a few steps you can take now to ensure you’re better prepared for a future financial emergency:
- Build a cash cushion equal to three or more months of expenses. Treat savings as a monthly expense that you must “pay” to a separate savings account.
- Apply for a line of credit to draw from during emergencies
- Consider alternate ways of generating revenue, including digital sales
- Cut non-essential expenses
- Identify alternate vendors to supply goods and services you need to operate if your primary vendors can’t deliver
- Develop business continuity and disaster recovery plans
With thoughtful planning and careful financial management, you can rest easier at night knowing that you’re better prepared to weather an economic crisis.
This is a stressful time for most business owners who are navigating uncharted waters. Don’t hesitate to seek help from a finance professional if needed. Momentum CFO is offering a limited number of complimentary coronavirus financial consultations through the end of May 2020. Grab your spot today!
About Momentum CFO
Momentum CFO is a boutique firm specializing in outsourced Chief Financial Officer services for small to mid-size businesses. We help clients increase profit, improve cash flow, plan, and make smart financial decisions. Enjoy the benefits of Fortune 500 financial expertise without the cost of a full-time CFO.