When Shit Gets Real, Quick.

The premier of Alberta, Jason Kenney, was on T.V two weeks ago, and I haven't been able to shake the thought of the message he delivered. He got in front of the world and said that 40% of Albertan small businesses “might not recover another forced shutdown.”

Here are some of his comments on the subject when asked why the government didn’t engage in these decisions many weeks sooner. It was one of the most real and raw moments I have seen from a politician.

“Enormous damage on the lives and livelihoods of hundreds of thousands of Albertans This is not Academic; this is very real; people will lose their life savings as a result of this. That’s tens of tens of thousands of families and hundreds of thousands of people that work for them.”

"For every one of those people who loses their business, their life savings, their job, their prospects for the future there is a risk of emotional and mental health challenges for some, potentially addictions challenges, all of which also have their own downstream physical health consequences."

"One of the problems we have in the COVID-19 era is that we do not have a proper way of measuring that or projecting that."

Here is a link to the interview: https://youtu.be/k5P-GvDBMdA?t=2610

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To be clear, I’m not a fan of politics, and rarely will I highlight something a politician has done. So please refrain from your opinions on how the government handles stuff. Keep that stuff to Facebook. However, as a business case study, I see this true moment one day becoming a lecture for an economics class. 

The Conclusion, CASH (Lack of), Not COVID started the spiral. COVID is a catalyst, yes, but If all these companies had the cash to meet their operational expenses for whatever extended period of time was required, they would have been able to weather the storm. The reality is that most businesses don’t have sufficient cash squirreled away to last more than 27 days if you look at studies like the one done by JP Morgan Chase https://www.jpmorganchase.com/institute/research/small-business/report-cash-flows-balances-and-buffer-days.htm#:~:text=Finding%20Three%3A%20The%20median%20small,cash%20buffer%20days%20in%20reserve.

COVID didn’t put people out of business. Lack of Cash did. COVID just revealed a fundamental business practice blatantly ignored by the financial professionals and the business community in general, and they are getting caught.

 For those who are living the scramble and are in imminent threat of failure, I would share my best wishes and some suggestions as follows.

1) Get your bookkeeping in order ASAP. If you still don’t know where you have been, you will never know where you are going.

Ignore this truth; I guarantee you’re not going to appreciate the final destination. Get to a Cloud-based accounting solution. It’s 2020, and your desktop solution doesn’t compete with the capabilities of industry-leading tools like #QBO, #Xero, and #Sage Intacct for the ability to get to real-time data easily.

2) Next, figure out how long you can survive. In Industry, we refer to this term as your ‘Runway’ for profitable business or burn rate for pre-profit (Funded) companies. This is done by building a Cash Flow Forecast. A Cash flow forecast is basically like a budget with one unique difference; it has a starting balance tied to the current amount of cash you have available and an end balance that results from the calculations of the inflows and outflows over a period. When the Cash hits zero, this is the end of the runway. In current economic conditions, anything less than 90 days of a runway is concerned, just like above. A cloud-based Cash Management Application Like Dryrun is a quick and accurate tool that can be used to get to this understanding.

Here is some truth that is hard to swallow but the reality of life. It is better to know you will not survive and call it a day as quickly as possible than fight a battle that is impossible to win. My friend and CEO of Dryrun, Blaine Bertsch, calls it the death of a million Paper cuts. I call it the zombie apocalypse.

With all the injection of cash into the government system in the hopes to curve and extend the chances for some businesses to weather this storm, they are giving cash to businesses who will never be able to repay the loans. What is dangerous about these businesses is that they are in negotiation and making deals with other businesses depending on these false promises of business interaction to carry them to the end. Eventually, these businesses will fail as they just had a bad process. The “zombie bite” will transmit the infection, which will follow a chain of promises and take down several other companies along the way. You cannot really blame the zombies for biting others; it's just in their nature. However, you can question the effectiveness of the current cash injection strategy, and it's being monitored and distributed. But I digress.

Suppose you got this far in the article, congratulations. Understanding the nature of an entrepreneur, most will ignore the significance of the Runway date and ask what to do next.

3) Build a Sales Forecast. One of my favorite sayings is, “Today's forecast is tomorrow cash.” The reality of a near-term Adjusted Cash Flow Forecast is it is highly accurate to 30-60 days at most. In fact, your AP/AR terms dictate its look into the future. In these times, you want at least 90 days, if not 120 days, with a highly accurate eye on the cash. Spend the time to build out a scenario for the next quarter and be honest about the sales you foresee while remembering to consider the cost of activities that directly impact those opportunities layered nicely over what would be a fair operational budget. A tool Like #Dryrun allows you to consolidate the Near term with the Sales Forecast in a matter of seconds to give you a distant look into a highly possible reality.

4) If you can get to this point, you need to understand one important aspect I did not mention above intentionally. Cash Management is a weekly activity (If not daily). Every week you should spend about 20 minutes updating your forecast and adjusting your AP/AR.

If I said this first, you would have refused to continue the article because it sounds like much work. Truthfully. Work is required to stay in business, so do it. You are worth it.

Lastly, for today,

Suppose you do not have regular conversations with the clients and vendors attached to AP/AR transactions, shame on you. People always ask me about predictive technologies and algorithms that they can use to skip the need to have a real human phone call. Many of Dryrun's competitors claim they have this functionality, and I call Bullshit. If their software could do this, it would have predicted the impact of COVID. Since no one saw this coming, the past actions don't dictate our near future, and the best thing you can do in these times is asking a client when they can pay vs. assuming they are going to pay you by a magic formula date. Like they say, assume, is making an ass out of you and me. Don't get lulled into believing that software can replace a quality relationship.

It is my best wish for no business to fail. However, until Cash Managment systems and processes are given the respect they deserve as a fundamental business activity, we are going to have to deal with an ugly reality that will impact us for many years to come.