COVID-19 Cash Flow Triage

March 27 2020 | by Chad Bumbaugh, CPA

Co-Author: Steve Snyder, CPA

Managing cash flow can be challenging during the best of times, much less during a crisis. As we find ourselves in the COVID-19 global pandemic, cash flow is not only a challenge, but one whose magnitude we have never experienced before. While the full impact remains unknown, there are many things that businesses can do now to protect and improve cash flow.

There is no sugar coating it, nearly every business will in some way be impacted by this epidemic, but mitigating that impact and damages not only helps your own business, but has a trickle effect on other businesses, communities, and the global marketplace.

Below is a hierarchy of cash flow management recommendations including things you can begin implementing immediately, items to consider next, and ones you should approach with caution due to their aggressiveness. Please note that these are meant to be a guide, every situation is unique and seeking the advice of professionals in this type of situation is strongly encouraged.

Tier 1: Strategies You Can Implement NOW

  1. SBA or State Loan Programs

      • Particularly forgivable loans and those with favorable interest rates
      • Update April 2, 2020: Interim final regulations issued by the Treasury and banks are beginning to accept applications as of April 3, 2020. (click link for details)
  2. Evaluate Payroll

    • Payroll over the next 2 months.
      • Consider things like furloughs (reducing hours), layoffs (rolling layoffs), etc. As we learn details on SBA loan forgiveness there may be some limits placed on flexibility. Make sure you are considering these steps along with the parameters of the new SBA opportunities.
      • Salary reductions
    • Change 401k match/profit sharing to 0
  3. Call the Bank

    • More capacity on line of credit or open a temporary line which could be a faster process
    • Deferrals on existing loans
    • Restructuring existing loans to reduce monthly debt service
  4. Call Customers

    • Understand how COVID-19 impacts their ability to pay your receivables (you may need to work with them).
      • Model scenarios using different assumptions for collections and combine this with your cash flow outlays to gauge when external funds may be needed
    • Will there be an impact on orders/work in the near future?
    • Consider requesting prepayments/retainers to provide cash flow/minimize collection risk – particularly for items with large costs to front.
  5. Call Vendors

    • Ask utilities for deferment or other options to manage monthly amounts.
    • Reach out to supply chain vendors to understand the impact of COVID-19 on their cash flow and what the impact would be to your supply chain
  6. Look into Local Options

    • See if any local or industry foundations are offering assistance
    • Chamber of Commerce
    • Local business associations
  7. State Sales Tax Relief

    • Some states are offering relief in the form on omitting requirement to “prepay” sales tax
  8. Crowdsourcing

Crowdsourcing allows customers to personally contribute to your business.

    • Kiva, a popular crowd-funder for entrepreneurs, is offering 0% interest loans up to $15,000 and a grace period of up to six months.
    • Mainvest is currently offering a $2,000, 0% interest loan for eligible businesses who use the site to raise capital
    • Additionally, as a result of the COVID-19 crisis, industry-specific crowdsourcing options have been established to show support to businesses and their employees.

COVID 19 Strategies to Consider Next

Tier 2: Strategies to Consider Next

  1. New Retirement Plan Options Under CARES Act

    • The CARES Act would allow individuals to withdraw up to $100,000 penalty-free from retirement accounts through the end of 2020 – caution, as you may be locking in paper losses due to any stock market, declines.
  2. Real Estate Equity

    • Tap into any existing equity on real estate
  3. Life Insurance Loans

    • Take a loan on existing cash surrender value of life insurance
  4. Line Of Credits

    • Consider pulling maximum funds on an existing line of credit to hold in account to ensure funds are available when needed.
COVID 19 Strategies to Consider with Caution

Tier 3: Strategies to Consider with Caution

  1. Low-Interest Credit Card Offers: Low-interest-rate period ends!

  2. Factoring of Accounts Receivable: Costly

  3. Adjust owner W-4 withholding to keep cash in business (save payroll tax but must “catch-up”)

  4. Distributions over wages or loads to owners (save payroll tax but have to pay reasonable compensation)

COVID 19 Do Not Do

Do Not Do

These are stressful times for many businesses and while there are many great options to consider, there are also some you may be tempted to do, but we highly recommend against it. These two examples might save you money short term but will also cause more problems than they are worth.

  1. Delay Retirement Plan Contributions

    • Specific to employee withholdings
  2. Not Remit Payroll Taxes

    • Unless exemption granted by CARES Act or applicable taxing authority

Next Steps

The COVID-19 crisis is impacting businesses everywhere, but it won’t last forever. Cash flow management needs to be an integral element of a company’s overall action plan to not only get through this current phase but recover from it. Even if your business has not felt any adverse effects yet, we encourage you to actively evaluate your cash flow requirements, develop appropriate actions under various scenarios, and assess potential risks

Much like a disaster recovery plan for technology, you absolutely need one for your money as well. We are here for you during this historic time. Please reach out to Stambaugh Ness if you have any questions or want to talk through your options to find ones that best meet your needs.

We also invite you to join our COVID-19 Town Hall sessions being held weekly to answer questions and provide Workforce, Regulatory, Technology, Cash Flow, and Human Resources guidance.


Chad Bumbaugh | Stambaugh Ness

Chad Bumbaugh, CPA | Managing Director, Entrepreneurial Services Group

During his career, Chad has worked with many different types of businesses on a wide range of tax and accounting issues. Beyond the traditional compliance work, he assists clients with tax and general business consulting matters, as well as implementations of new accounting pronouncements. He particularly enjoys opportunities to strategize with clients on how to more efficiently conduct operations, improve cash flow, and minimize tax burdens. The relationship which develops when you partner with clients to identify practice solutions is one of the highlights of his position.

Connect with Chad on LinkedIn.

Steve Snyder, CPA, CCIFP - Stambaugh Ness

Steve Snyder, CPA, CCIFP | Director, AEC Group

As Director, Steve’s concentration is on assisting clients within the architecture, engineering, construction and real estate development industries to improve internal processes and maximize profitability. Clients also benefit from his extensive experience auditing employee benefit plans ranging from 100 to 5,000 employees. In addition to his technical competence, Steve is an avid Penn State football fan and expert tailgater.

Connect with Steve on LinkedIn.

 

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