Cash is critical.
In a crisis, cash is absolutely critical. Without it, you cannot pay
your debts and obligations. You cannot buy mandatory supplies. So you must take steps to conserve your cash. You should also have access to
one or more sources of cash. If you have been running a lean,
operationally-focused profitable enterprise, then you will have built up
reserves (assuming you didn’t pull all the cash out of the business for
personal pursuits).
Let’s drill down into financial management to both avoid -where possible – and weather a crisis.
Generate operational cash and manage it.
You need to structure your operations to first drive a high gross
profit ($$) and gross margin (%). The gross margin is your gross
profit/total sales. To arrive at your gross profit, deduct all costs directly
related to producing and delivering the goods or services you provide.
These include direct labor and all their benefits and associated costs
(workers comp, 401K matching, insurance benefits, etc.), shipping and
transportation, inventory, supplies, and equipment rental.
It is optimal to track gross margin by product or service so you can
make the necessary adjustments to your offerings and your pricing.
- Can you drive down costs on lower margin items?
- Are you managing your people to deliver the service or product efficiently?
- Do you have
clearly defined duties tied to company objectives and clear expectations
for each and every employee?
All of these impact your gross profit.
Every single one.
Streamline overhead.Minimize overhead expenses as much as possible but don't be cheap. Focusing only on costs instead of on overall value can be just as damaging as continually overspending. I've seen it. Repeatedly.
Instead, be strategic, effective and efficient. Outsource what makes sense and hire for what is strategic.
Goal: retain as much as your gross profit as possible and generate a
high operating profit (pre-tax and before any extraordinary expenses or
income).
******************************************************************
Want to learn more about how re-structuring your operations for cash and profit? Join the webinar on April 21 at 11 am eastern:
******************************************************************
Collect.All the above is moot if you do not have financial systems and procedures in place to collect. A 22% operating profit is wonderful, but not if that money is missing from your bank account! Focus as much effort on streamlining your financial operations as you do the rest, otherwise you won't have the cash.
Have sufficient debt or financing capacity.
Financing cash provides support to your operations and your operational cash flow. So you first need a sufficient line of credit with enough room on it. If your current credit line is constantly maxed out and rarely goes to zero, increase the line. And re-structure your operations.
Restructure debt and leases.If your crises is deeper or will last longer than your current cash and credit line can support, work with your bank, other lending institutions and your landlord, in that order. Options include:
- Request a forbearance. Ask for a 3-month, 6-month or longer cessation of payment, at which time the loan will presume.
- Decrease payments. From $3,000 per month to $1,000 for a specified period.
- Roll loan into another loan. This is similar to re-financing but the loan amount is increasing.
- Get a new loan. Get a term loan to cover payroll, equipment or other expenses during the crisis period.
