#First Things First

By Larry Weiss, Weiss Advisors LLC – May, 2020 [email protected]

A mentor of mine told me, "Do the First Things First"--truly outstanding advice for today. For my business friends, this can mean many things right now. I provide here four actions I believe are critical.

Review your Expenses

Review year to date expenses. Begin with the largest dollar categories, excluding payroll (we will talk more about later). Start by reviewing five categories at a time, working through them in descending dollar order. As you review the individual components in each category, determine if you can stop spending this money or reduce this expense by using less or finding a less expensive option. How aggressive you will be in this analysis should be driven by your Cash Flow Forecast and the cash position you wish to maintain. Remember: every $ saved goes toward you, your team, and the health of your business! As you make these changes, communicate them to your team and customers, as appropriate. Remind your team that your goal is to reduce expenses rather than payroll – this improves their job security. Tell your customers that, you are working to hold your costs down so you can continue to offer your high level of service.

Develop a Cash Flow Forecast

A cash flow forecast estimates the cash you expect to flow in and out of your business, including all of your receipts and disbursements. Keep in mind that cash flow projections will never be perfect. This tool can identify the levers you can adjust for collections, disbursements as well as identify if additional cash could be required (disbursements exceed collections). To prepare, I suggest gathering expense detail for the year and today’s cash balance (along with savings account balances and or available balances on loans you could use). Please expand this summary to better fit your personal situation. Start with today’s cash balance. Add estimated receipts for next month, including last month’s receivables to be collected, current month sales collected, and any other expected cash receipts. Subtract expected disbursements for next month, including payroll, taxes, benefits, rent, utilities, lease payments, payables from last month, loan payments, and any other expected disbursements. The resulting sum is cash on hand at month end. I suggest preparing for the current month and the following two months at a minimum and updating once or twice during the month. The advantage of preparing the current month and two more is to give yourself time to make adjustments should you forecast running out of cash.

Call your Trusted Advisors

Reach out to trusted advisors, including your Banker, Landlord, Accountant/Tax Advisor, Attorney and anyone else whose advice your business relies on. First, ask them if, based on what they know of your business, they have any insights and or suggestions they can share to help you weather this storm. In addition, I would ask the following of each of them;

·      Banker – Do they have a program to waive principle payments for the next 3 – 6 months? Are they an SBA approved lender? What are their recommendations relative to loan options available for your business (SBA or other)?

·      Landlord – Would they forego rent the next 3 months or reduce by 50%?

·      Accountant/Tax Advisor – What are best practices their other clients are using? Can any of your upcoming tax payments be skipped, deferred or lowered? Ask for help developing a cash flow projection if you need.

·      Attorney - What are best practices their other clients are using?

Review all your Employees and Rank Order them

Divide your team into three categories. “A” players are star performers--they are employees who are striving to accomplish more or move upward in the organization. “A” players are the risk-takers, the “high potentials,” and are the core of your team you will need to recover from this pandemic. “B” players are competent, steady performers doing the bulk of the work of the company. B players tend to stay put, don’t require a lot of attention, and they get the job done. “C” players are performers who get by. A typical distribution of team members is 20% “A”, 70% “B” and 10% “C”. This is a good time to develop a strategy to surgically remove the “C” players from the team or coach them up to “B” players. Based on your cash flow projection, determine how much payroll you can keep and when you can start adding back. Rank order the employees with an eye towards work you have on hand and who you will need to rebuild your business when the good times return. Work with your advisors/team to determine who should be laid off, furloughed, kept on payroll (at current or reduced salary), and when you can add back. 

In closing, remember to communicate, listen, execute, and above all First Things First.