Written By: Dan Diaz and Jeff Wall
The COVID-19 (Coronavirus) Pandemic is causing anxiety and uncertainty in the global economy, but creating an opportunity and necessity to evaluate and manage cash flow properly.
This crisis is putting many businesses in unfavorable cash positions. In a competitive environment, “cash is king,” the fuel that keeps the engine running. Without cash, profits have no real value. Despite money being the lifeblood of a business, many business owners don’t really have a handle on their cash flow,” says CPA Philip Campbell, author of Never Run Out of Cash. “Poor cash-flow management is causing more business failures today than ever before.”
This unprecedented COVID-19 pandemic has caused sharp reductions in customer demand for many industries. Government restrictions also have limited production, the supply of materials, and the availability of human resources. Additionally, many customers are paying slow to preserve their cash. This “Perfect Storm” is severely reducing available cash resources by preventing the shipment and invoicing of customer orders, as well as delaying incoming cash receipts.
When we come out of this period, the path forward should be planned and evaluated carefully. There will be hard decisions to make about whether to use up available cash, take on new investors, or open new lines of credit. Forecasted revenue projections and cash projections must be data-driven and realistic for these new market conditions and demands. Management must make informed decisions about acquiring added debt, cash usage, or extension of Accounts Payable to avoid stunting future growth or crippling a company to the point of no return, or even bankruptcy.
Fortunately, the government has enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In this stimulus package, there are several options for small to midsize businesses to receive the cash they need to stay afloat. Here is a brief list of the programs available:
– Paycheck Protection Program: The United States SBA (Small Business Association) will guarantee loans of up to $10 million to eligible companies to help maintain payrolls for up to eight weeks at employees’ normal salary levels. Loan proceeds can also be used for qualifying expenses.
– Expanded access to U.S. SBA Economic Injury Disaster Loans: The SBA is providing working capital low-interest loans of up to $2 million to businesses affected by the Coronavirus.
– Emergency grant of $10K to SBA Economic Injury Disaster Loan applicants: This grant will be available even if your business is denied a loan and can be used for various business needs.
– Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act: Both Acts are part of the Families First Coronavirus Response Act (FFCRA). They provide for worker and employer protections, paid relief, and Federal reimbursement of certain expenditures.
– State Resources: In addition to the Federal assistance programs listed above, many states are providing financial support like zero interest bridge loans to help fill immediate needs.
Applying for these programs may require the borrowing company to document its capability to handle the increase in debt. The amount of documentation will depend on the size of the loan and whether the loan will require collateral. In many cases, revolving credit lines are determined by accounts receivable, inventory levels, and financial equations.
Effective use of a modern ERP system, such as Infor’s CloudSuite Industrial (CSI), is critical for monitoring, forecasting, evaluating, and reacting to cash flow issues. Such a comprehensive, well-integrated ERP system will also help supply the required Federal Program application documentation and support ongoing compliance reporting. Key CSI features for COVID-19 Relief applications and management include:
- Accurate Financial, Plan, and Budget Reporting.
- Raw Material, Work-In-Process, Sub-Assembly, and Finished Goods Inventory Reporting.
- Full Accounts Payable Management with Aging Reports.
- Cash Management and Forecasting (Cash Impact Report, Cash Receipts – Due Report, and Cash Requirements Report).
- Credit and Collection Tools (Credit Limits, Automated Daily Credit Compliance Analysis, Dunning Letters, and Customer Interaction Documentation (i.e., users can document collection conversations, responses, and emails with Customers).
- Paid Employee Leave tracking under the CARES Act (Requires CSI Payroll).
Cash flow management is critical for growing companies trying to manage their cash flow. The difference in time between collecting cash from your customers and paying cash to your suppliers and employees, can negatively affect your cash availability, limit your borrowing ability, and delay needed investments to stay competitive.
An experienced ERP consultant can help identify opportunities and assist with the best use of the investment in your ERP System. This includes reporting and managing your response to COVID-19. Decision Resources has been helping manufacturers get the most from their business systems and technology for more than 40 years. Leverage our ERP Consulting expertise to help you work through and recover during this exceptional era. We’re here to help. Contact us today.