the remaining company into another entity, at a substantial monetary loss.
Plan for liquidity Companies with liquidity could afford to move to the top of their industries; conversely, those facing declining collections had to plan carefully to get through. With the pandemic, working capital presents new challenges to forecast. Financial projections use what’s controllable to minimize the impact of what isn’t. The starting point should be to understand the existing backlog, budgeted inflows and outflows, and the timing of balance sheet realization in cash. The conversion cycle measures days’ inventory paid for plus collections tied up in receivables. Management projects the best, worst, and most likely cases, from which to determine the next steps. Often, obligations may need to be renegotiated or additional financing obtained. Managers must redeploy and adjust resources with surgical precision. Overdoing cuts risks the company’s future. To keep people employed, the government has expanded lending to small businesses. Without it, companies might incur temporary layoffs, only to hire and retrain later. Many businesses resisted government aid, considering themselves as not needing it. In retrospect, the incentives provided a lifeline for many companies to get them through the shutdown.
The worst-hit businesses now hope to receive additional assistance. Programs change, making it critical to stay current. Under the Paycheck Protection Program (PPP) overseen by the U.S. Small Business Administration (SBA), borrowers may have their loans forgiven, in effect becoming grants. The alternative Covid-19 Economic Injury Disaster Loan (EIDL) streamlines applications direct to the SBA. Further, payroll tax deferral and Employee Retention Credits are available to EIDL borrowers. The Coronavirus Aid, Relief, and Economic Security (CARES) Act also lifted income tax restrictions on losses, interest expense, and depreciation of real estate improvements to spur business activity. It alleviated many deduction limits. Regular C corporations can carry back losses up to five years starting from the year 2018. Significant wealth can start in the worst of times. During the Great Depression, companies founded included Publix Super Markets, E&J Gallo Wineries, (Howard) Hughes Aircraft Co., J. Paul Getty’s oil companies, and the forerunner of Little Debbie Cream Pies. Businesses can emerge from a downturn even stronger. Make your business the next success! EA
Companies with liquidity could afford to move to the top of their industries; conversely, those facing declining collections had to plan carefully to get through
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