Despite hopeful messages of a rapid upswing of the economy, the reality might look different. Of course, you know the true importance of your financial situation, but oftentimes it is easy to focus mainly on your bottom line yet at the same time lose sight of what is really going on beyond your account balance. Urgent daily operations and responding to fires can easily lead to long hours of working IN your business, leaving little, if any, time available to work ON your business. At a time like this, knowing your cash flow is urgent.

Depending on your industry, your revenues might be significantly reduced, if not zero. Hopefully you were able to secure some financial support from the federal Coronavirus Relief Programs that has helped to ease the economic pain.

With some of the restrictions for businesses being slightly lifted and the state and country being in the reopening process, some voices predict a rapid rebound of the economy overall. While it is a good thing to have positive expectations about the future, we do, however, still advise our clients to have a realistic assessment of the immediate future. There are some undeniable factors that make a slower recovery more likely than a rapid upswing:

  • Consumers are concerned about their health: There are studies and polls that indicate that a significant number of consumers will not immediately take advantage of loosened restrictions because they fear to catch the virus and do not want to put themselves or their families at risk. As long as there is no vaccine, or at least an effective treatment available, this might not really change.
  • The Paycheck Protection Program will expire soon: The PPP has secured many jobs within small and medium sized businesses, but it will expire soon. A significant number of employees could lose their jobs and their income, which would clearly limit their ability to spend.
  • The unemployment stimulus expires at the end of July, and the generous weekly payment of 600 dollars that many unemployed receive will only be paid until end of July.

These factors make it very likely that revenues for many businesses will recover much slower than many predict. Additionally for many businesses the operating costs will be higher due to required cleaning and sanitizing processes. Although it is always good to hope for the best, it is also important to be prepared for the worst at a time like this. It is critical to be very familiar with your numbers to avoid running out of cash. Knowing today’s balance on the bank account is certainly not enough. Creating a budget and planning and monitoring your cash flow for, at least, the next six months are absolutely crucial.

You should know the following:

  • How long can my business survive (which means how long am I able to pay for expenses that are absolutely necessary to stay in business) if my revenue stays at the current level? How much cash do I have today, and what is my daily/weekly/monthly cash burn rate?
  • How long will it take to reach break-even, and how long will it take to compensate for the losses that have accumulated through this crisis?
  • How long will it be until I am able to pay back loans that were necessary to survive?

You must be realistic and transparent about your current situation. Only then will you know if it is necessary to do things differently from what you are doing right now. You still can hope that things improve, but hope alone is not the best strategy. By planning and acting accordingly,  you will increase the probability of coming out of this crisis stronger than before.