As our economy is going through dramatic changes due to Covid-19, it is time to re-examine your company’s balance sheet and income statement to make adjustments or even changes in direction in order to survive and thrive. This article addresses what you need to do in this regard, following my last blog where I talked about “A Crisis Calls for Changing Financial Budget and Business Plans”.
Income Statement Health
An income statement demonstrates the performance of a company over a specific period of time.
- Focus on your essential and the most profitable products or services, rather than discretionary and the less profitable.
- Has the customer mindset changed? Any changes on the demand part for your business?
- Will sales return to pre COVID-19 levels?
- When the market reopens, will there be a surge due to delayed demand? Or a slow ramp up? Or a loss? Is the loss of revenue permanent or temporary?
Employee cost reduction
For many businesses, employee compensation and related costs are the largest expense.
- Can you keep essential employees? Can everyone take salary reduction versus layoffs?
- Are you managing your benefits such as mandatory sick leave pay, home office reimbursements, and other issues arising from stay in place, work from home, and other new work arrangements?
- Can you cancel orders for services, inventory or supplies not immediately necessary?
- Are there recurring service costs that are no longer required?
- Are insurance policies accurate and still relevant?
- Taxes have been delayed but are still due. Will you be ready for these larger income, sales, and other tax payments due in the coming months?
Balance Sheet Health
Balance sheet is a picture for a company’s assets, liabilities, and net worth for a company at a point in time.
What is your current and projected cash balance? Do you have enough? Do you have the ability to receive additional cash through loans, government help, or equity investments? Focusing on cash now is critical. You need to prioritize receiving all the cash you can immediately.
Are you still in compliance with existing loan terms? If not, you need to contact your financial institutions and address the non-compliance issues. Can you expand and receive new sources of cash? If you receive government grants or loans, be sure to document and track their requirements carefully to maximize the loan and potential loan forgiveness.
Contact customers to see how they are faring and find out if and when they will pay. Prioritize customers whom you can collect from the soonest, and follow through.
Fixed Assets, Investments and Other Assets
Re-assess investments that can be sold, deferred and/or cancelled, such as idle company cars from reduced travel, less need for office space due to working from home, equipment not needed resulting from eliminating less profitable lines or from reducing the scope of business.
Accounts Payable and Other Liabilities
Call your vendors and ask for extended terms if possible; at the same time maintain critical relationships.
Accounting Estimates and Balance Sheet Clean Up
Review and verify all balance sheet accounts including related accounting reserves, estimates, etc., to reflect the current situation.
Strategically managing your customers, employees, and suppliers will determine your success in navigating the Covid-19 New Normal and survive the current crisis.
A2zCFO, both the Right and Left Arms for your organization:
A2ZCFO takes pride in helping small business owners prepare for either storms or calm weather, and navigate safely through rough waters. As a consulting CFO, I help business owners and management to “keep your ship on course.”
- We help with any aspect of financial management from A to Z.
- By providing trusted financial advice, I create financial and goal clarity, resulting in increases in cash, profitability and sales all the while preparing the business strategically for a successful exit when the time is right.
- Works at client’s location and directly with client’s staff;
- Affordable and flexibility in hours – 4 hours a month to short term full time assignment;
- Excels at messy and difficult clean up situations;
- Meaningful financial reporting for management, bankers, and CPA’s. Tax returns completed by 4/15;
- Cradle to grave services – from bootstrapped startups to exit transition service experience.
Please call me (925) 216-5058 or email: rolf@a2zCFO.com
A2Z CFO, we keep your ship on course.