5 Ways to Find Cash in Your Business and Avoid Layoffs
We are living in highly uncertain times. As revenue streams dry up, small businesses are weighing many difficult decisions. Fortunately, there are several steps businesses owners can take to avoid layoffs and furloughs. As always, your individual situation should be considered as it applies to any of the thoughts below.
1. Focus on Collection
Perhaps most obvious of all. If you have performed work that you haven’t yet billed for, now is the time to focus on collecting. Start billing as soon as possible, because collection will likely be more difficult and slower than usual. In the direst of situations, if you have clients or customers that end up facing bankruptcy, you’re better off “getting in line” early to increase your likelihood of collecting in the future.
2. Evaluate and Renegotiate Everything
If you’ve already taken action on the item above, then you likely have also been on the receiving end of this equation. You should expect everyone to start negotiating favorable payment terms so you should start doing it too. Evaluate everything. Ramit Sethi’s personal finance advice applies to business as well, now more than ever as revenues dry up — where can you stop automating money out? Evaluate all expenses in detail. Keep only the most essential items. Read this thread about how the Gumroad founder turned the company around from burning $350k per month to making $10k per month in profit.
Where can you renegotiate lower interest rates, payment extensions or favorable credit options? Does it make sense for you to agree to a contract extension in return for a few free months of service now? Do you have annual subscription renewals coming up that you can switch to monthly payments? Look at everything and get creative.
3. Take Advantage of Government Programs
The massive CARES Act economic stimulus bill passed last week, which includes $349 billion allocated for small businesses known as the Paycheck Protection Program (“PPP”). Although early reports suggest some delays in the system, small businesses can now begin applying for these loans. The purpose of this stimulus is the help small businesses pay for payroll expenses.
Generally, companies with fewer than 500 employees are eligible for the program (although further guidance now makes exceptions for some larger companies: FAQ). This includes sole proprietors, independent contractors and self-employed individuals. Loans amounts are calculated based on payroll and other allowable expenses and can total up to $10 million. Loan forgiveness is based on expenses paid for payroll and other eligible expenses during the eight week period starting on the loan origination date. It’s important to note, however, that the amount of loan forgiveness may be reduced if you also elect to lay off employees or cut wages. See example below:
How to apply
There are several different agencies and institutions involved in processing these PPP loans. The flow of funds is as follows: Treasury Department > SBA > Preferred Lenders > Small Businesses. So start by asking your financial institution if they are a preferred lender, and visit this resource from the Treasury Department for a summary of the program and to access the application: https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf
Update: There are many helpful PPP calculators popping up. I like this one.
4. Get Creative to Find to Revenue Sources
Many businesses have found ways to pivot to meet the growing need for newly essential goods and services such as cleaning supplies and personal protective equipment. Distilleries across the United States are beginning to produce hand sanitizer. Manufacturers are finding new and innovative ways to start making ventilators. Outdoor equipment retailers are shifting towards producing masks. Retailers are offering more to-go and delivery options. Is there a creative way to generate a new revenue source that you hadn’t previously considered?
5. Last Resort — Leaders First, Benefits, then Jobs
Leaders should take the hit first. This should be obvious, but top executives should be willing to take a significant pay cut before laying off other employees.
Next, consider which benefits you could cut. No one is going to be happy about this, but if it saves jobs it’s worth it. For example, profit-sharing and 401(k) matching are likely to be among the first benefits paused.
Lay-offs should be the absolute last resort. Given the loan forgiveness stipulations outlined in the Paycheck Protection Program, specific consideration should be given before making personnel changes if you’re also applying for a government loan.
Beyond revenue and cash though, what can your business do to generate hope and community? We need it more now than ever.
Disclaimer: Further guidance continues to emerge related to the CARES Act and the Paycheck Protection Program. Actual loan and forgiveness amounts will be determined by your financial institution based on federal law, regulations and bank policies. Consult with your financial advisor and your bank to determine actual loan and forgiveness amounts.
