The Virus is NOT the Problem.

Across world, people everywhere are living through a very surreal time. Borders are closing. People are told to stay in their home. Businesses are mandated to close putting many are on the verge of failure. People are wondering where and how they are going to pay bills. People everywhere are trying to stay healthy. Six months ago, this was on no ones radar.

The Virus is not the Problem.

To be clear, I am not overlooking the obvious health crisis. I understand that human lives are at stake. There will undoubtedly be a prolonged period of increased anxiety and suffering. The truth is you or I may not actually get sick from the virus, but there is a part of life that affects us all whether we actually get the virus or not.... Our economics.

The virus is not the problem, it is only what is being blamed.

Economically... Socially... the virus is a contributor to some of the issues of today rather than the problem. It is an irritant that has shown us the weaknesses in our society, our economics, our lives. How we respond will make a big difference on the other side. The first order of business is to try an determine what is the true problem we face in our flailing economics. In that regard, the virus is not the problem...

What is the Problem?

Many have been woefully unprepared economically and socially for such an exogenous event. We have kept our heads in the sand for too long and not taken steps to prepare ourselves and our families for these types of events. I get it. Something so mundane as money gets shoved on the to do list to some point in the future. I know it is tough to drag yourself up the economic spectrum. The truth is the way you have managed your economic during the good times will determine how well you manage this downturn. A bad economy does not create bad finances, it exposes them. Some of the potential weaknesses that cause financial stress are:

• Excess debt...
• Excess expenses or spending...
• Not enough cash reserves...
• Lack of enough income...
• To many fixed expenses or debt payments...

If you find yourself behind the eight ball, now is the time to act. The longer you delay, the more draconian measures you may have to make. We are in the defense segment in this game of life. The issue for all of us is that we do not know how long this will last. The speed and accuracy of your response is vital. Anticipate rather than react.

What do we do?

The strategy of the moment should be defense; survival. Break even is a win.

Cash is king right now. Some will say it is a time for expansion and growth. I say yes... only if you are in a position that is financially strong AND you have excess cash reserves.

Once you spend the cash you have it is gone FOREVER. We are in the midst of the storm with an unknown end. We must face the fact that this could go on longer than any of the experts think. I would not assume the "V" shaped recovery that many are projecting as the base case. The longer this goes on the more the economic pain will manifest. The longer this goes on, the more jobs that will not easily come back, the more businesses will fail. That said here are some things to think about as we navigate these uncertain times.

1. Take radical responsibility - The sooner you accept your hand in what you are going through financially, the sooner you can start thinking about a way to move forward. If we are honest with ourselves, there is always something we could have done better. This is not time for the blame game. Blaming has never solved the issues anyway.
2. Maintain and increase cash reserves - Cash is king. It will be the oxygen to maintain financial stability. Delay accounts payable. Accelerate accounts receivable where possible. Consider getting to at least three to six months. Be ready to adjust as new information come in and the environment shifts. The point is to stabilize your circumstances so that you can better weather the storm.
3. Reduce expenses aggressively - This is not the time to be addicted to all of your life's little pleasure. I recommend cutting expenses to at least get to cash flow neutral. I would also have a phased tier structure so that if it gets worse or lasts longer then you can continue to stay flexible and adjust with the new information. Consider having three tiers, with the first tier getting you to cash flow neutral. Cash flow neutral is incoming cash flow equals outgoing cash flow. Cash flow neutral should be the minimum standard in this environment. It is better to make the cuts now rather than being forced to make them later, because then the money is gone.
4. Prepare for job loss or furlough - Never say never. I doubt anyone saw this happening the way it is happening. The job market could get much worse. Never before has the government given a mass direction for business owners to shut down their business. If you were planning to change jobs, suck it up and stay until things stabilize. I know many think is will be easy to just get another job. Do not over play your hand. Think survival.
5. Communicate to debtors - If your cash flow or debt issues are insurmountable, it is time to speak to these people. Ask for a pause in payments. It is important that you survive. Once the storm subsides, then you can address the penalties for the delay in payments. Remember you must survive to play another day and your debtor know this. Realize they too potentially have financial hardships. So be respectful and ask if needed.
6. Prepare a cash flow projections - This is a tactic I use to turn around someones finances. The game to win first, is proper cash flow management. Use a spread sheet with all of your expenses and dates due, run the projections along side the timing of your income streams. Make sure there are no shortfalls. This is a time to be extremely proactive in the comings and goings of your money. This goes for your personal finances as well as your business if you have one. Time to consider the entire financial patient.

As you review your circumstances; face reality. If you are optimistic, that is awesome but run a scenario that is twenty or thirty percent more pessimistic. Sometimes we have to hack our self mentally. If you plan for a bit more pessimistic scenario then it is easier to pivot if things get worse. The less stress you can have in this environment the clearer you can think. If the more pessimistic scenario does not materialize, you could be in a stronger position when it comes time to play offense.

Offense will be the right move at some point, I just do not see the need to rush the offense on the field given the many unknowns. I made the mistake of playing offense too soon in the last financial crisis, I almost got crushed because I did not realize the game had changed. The game could be changing right now. Better to wait in my opinion. There will be time.

Stay healthy. Be Prepared. This will pass.

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Lewis B. Walker Jr., is a CERTIFIED FINANCIAL PLANNER ?, professional dedicated to the education encouragement and empowerment of individuals.

He uses the perspective from his journey of going from financial insecurity and five figures in debt to financial stability using hard work and an attitude of one hundred percent responsibility for his circumstances. He believes that money and all that goes with it begins first with the internal game and through commonly used tactics anyone can work towards becoming less financially insecure and find success on their terms. With his twenty plus years of counseling success he knows that money alone does not create true wealth, but with better money comes better lives. He writes about his perspectives on what he believes are the five realms of a truly wealthy life: Physical, Intellectual, Social, Spiritual and Economic.

He is a Financial Consultant with LPL Financial. For more information about Bob or hiring him to speak or assist with finances, send a message through LinkedIn.

The opinions are that of the author and are not indicative of LPL Financial or any other affiliations. Markets are extremely unpredictable and nothing in my post should be construed as advice or a prediction in any form. Securities are offered through LPL Financial, member FINRA/SIPC. The investment products sold through LPL Financial are NOT FDIC insured. These obligations are not obligations, nor endorsed, recommended or guaranteed by any government agency. Insurance products offered through LPL Financial or its licensed affiliates. The value of the investment may fluctuate. The return on the investment is not guaranteed. Loss of principal is possible.                   

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP?, CERTIFIED FINANCIAL PLANNER?, CFP? (with plaque design) and CFP? (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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