To our valued clients,
Protect Your Company's Cash Position
The most important survival step to take, after ensuring the safety of your team, is to protect, as much as possible, the company’s cash position. Do whatever you can to cut costs and maintain liquidity. Re-focus on your core business and pause or eliminate any unnecessary projects which may be viable in the long-term but utilize short-term liquidity. Talk to your lenders as soon as possible to discuss your plans and the availability of loan relief options if needed. The goal is to “survive today in order to thrive tomorrow.” Talk to your Machen McChesney, LLP advisor to get started or discuss critical issues.
Tools for the Battle
Management needs to consider the tools it will utilize to fight the battle. We recommend the “rolling 13-week cash flow analysis” and keeping financial statements current:
- The rolling 13-week analysis is usually prepared in Excel and can be a simple or complex depending on your desires and the complexity of the business.
- Current 2019 year to date & month to month financial statements. Current 2020 month to month financial statement.
- Most recently filed income tax returns. 2018 is fine if 2019 has not yet been filed.
Critical Management Decisions
Some of the actions a business can take to manage cash flow utilizing analysis include:
- Working with customers to understand the new collection cycle, work on full collection were possible but also accept partial payment plans
- Negotiating with vendors for extended payment terms.
- Allocation of critical and non-critical expenses. Separate vendors into groups A, B, & C:
- A. Payroll, taxes, loan payments, insurance
- B. Critical material suppliers & service providers
- C. All others
- Timing of workforce reductions or ramp-ups
- Negotiating with lenders to address a temporary liquidity. Request loan payment extension of 90-120 days.
- Communicating an overview of the situation with customers & key business stakeholders
SBA Disaster Loan Program
As you may have heard, the Federal government, through the Small Business Administration (SBA), has programs available to assist businesses during this crisis. The SBA is currently providing disaster relief funds for a variety of disasters including Covid-19. Making use of the programs that are available to you can help increase cash inflow. We stand ready to assist you with this process. Call us ASAP. The sooner & more complete you submit your application is critical.
Bank Loan Modifications
The banking regulators have indicated that they intend to ease restrictions that borrowers might normally face when seeking loan modification. According to a March 22 joint statement issued by multiple agencies (Federal Reserve System Board of Governors, the FDIC, the NCUA, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, and Conference of State Bank Supervisors) regulators will not automatically categorize all Covid-19 related short-loan modifications as troubled debt restructurings (TDRs). This is an important benefit for businesses trying to manage through the financial impact of Covid-19. Normally, when a loan modification is classified as a TDR this could limit the ability to make future modifications to the agreement triggering a set of financial accounting and reporting rules in order to properly reflect the substance of the TDR.
According to the joint statement that was issued, short term loan modification of less than six months, including payment deferrals, waivers, extension of repayments terms or other delays in payment, would qualify for treatment under the eased restrictions. However, borrowers need to be considered current, generally less than 30 days past due on their contractual payments at the time a modification program is implemented. We recommend that you reach out to your financial institution before you fall out of good standing.
Machen McChesney has assembled a list of resources to help; available on the Coronavirus Updates section of our “Resources Page”, https://machenmcchesney.com/resources/coronavirus-updates/.
As always, please reach out to your main point of contact at the firm or any other members of your service team at the firm for more information.
Best Regards,
Martin D. Williams, CPA,
Managing Partner
Machen McChesney, LLP
