Planning For Survival: Holding On to the Cash You Have

(Bloomberg Businessweek) -- For most small businesses—at least the ones that have drastically scaled back operations or shut down altogether—the crisis triggered by the Covid-19 pandemic poses a long-term existential threat. There's not a lot of money coming in, maybe none at all, but expenses chug along as if nothing has happened: Rent, loan payments, utilities, insurance, and other obligations still come due every month. Most small businesses don't have the financial cushion to outlast a shutdown that could last for months. Indeed, a 2016 study by the JPMorgan Chase Institute of the bank's small-business customers in major metro areas found that only half of them have banked enough money to pay the bills for a month. Only a quarter have two months’ worth of cash buffer.

So, the name of the game now is conserving cash. "You need to hold on to whatever you have," says Andy Fried, a counselor at the Small Business Development Center in Kennesaw, Ga. "Most expenses are variable—you can control them. Some are fixed and uncontrollable, like rent. You really need to focus on the uncontrollable expenses.”

If there's good news now, says Fried, it's that unlike the last recession, there seems to be widespread recognition that consumers and small businesses need a safety net—and at least for the short term, the federal government has fielded one, and others have followed suit.

What can you do? 

1. Look to the SBA.
If you have a term loan guaranteed by the Small Business Administration, the federal government will pick up your payments, both principal and interest, for the next six months. This should happen automatically for all payments due after March 27.
 

2. Call your bank.

If you have a conventional business loan, call your bank and ask to reduce or defer your payments. You can ask for a three-month payment deferral with either a loan extension or balloon payment at the end, or try to have the loan refinanced.

3. Call your landlord.

According to a new survey from the Pension Real Estate Association, about 86% of landlords are discussing rent reductions or deferrals with at least some tenants, and nearly half have already made some concessions. "Most landlords across the U.S. don't have a potential tenant knocking on their door," says Susan Wachter, a real estate and finance professor at the Wharton School. "They either extend, or they have an empty space for the foreseeable future."

Fried, himself a landlord, has offered his tenants two months deferred rent or four months of half rent.

Counselors at Small Business Development Centers in Washington state are telling small-business owners to seek rent deferral for at least three months, in exchange for a lease extension or repayment spread over the remainder of the lease or in a lump sum at the end. (Don't feel too bad for the landlords; they're getting concessions from their lenders.)

4. Call your insurance carrier.

Most insurers are reducing premiums for businesses idled by the pandemic, says Jeff Perlman, a partner in Borden Perlman, an insurance agency in central New Jersey. For example, liability insurance premiums are calculated based on business revenue, and if revenue falls during the policy's term, premiums can be adjusted downward proportionally.

"We're finding that 95% of the underwriters are agreeable to a negotiation, within reason," says Perlman, who says his firm works with about 30 different carriers.

Workers' compensation premiums can also be reduced if you've sent your employees home, even if you've kept them on the payroll. (In that case, your agent can change their job classifications codes to less expensive categories, such as clerical work.) Be firm and persistent with your agent, whose compensation is probably determined by the premiums you pay, which can be a disincentive for helping to reduce them.

5. Many utilities and taxing authorities are also offering forbearance.

Among variable costs, business owners often find managing inventory most challenging—having too much on hand is one of the main reasons businesses often book a profit but manage to keep little cash on hand, according to Steve Burke of the Washington state SBDC. Take a thorough inventory, return what you can, and cancel future orders. See if you can put off paying vendors. At the same time, says Burke, if you have receivables, try to reel those in—perhaps by offering a discount for faster payment.

"Every single situation is different," says Fried. "A weak company going to into this disaster, they're simply not going to make it. But if you're a company with a moderately strong balance sheet, you have more assets than liabilities, I think you can really get through this thing."

©2020 Bloomberg L.P.