Act Now: Cash Planning for the Coming Recession (w/ free template)

Officially, we are NOT in a recession…Yet.

But based on how fast things have been moving during the last few weeks, there is no time to “wait and see” what happens to the economy.

You need a Covid Crisis Cash Plan TODAY.

Getting through any crisis requires you to “Model, Imagine, and Act” to preserve the cash flow of the company. Here’s what you should be doing NOW.

MODEL FUTURE CASH

In times like these, a simple XL model is your best friend. I’ve not yet met any accounting software that can do a decent job of projecting the future, but you can — with a simple cash plan model in XL. I’ve built the template for you (XL Template, or Google Sheets Template) and you can modify it in about 20 minutes. Here’s how:

  1. Download a simple XL Cash Plan template here (XL / Google Sheets). It has 4 tabs: “Cash Plan”, “P&L”, “Sales” and “Wages”. Next we’ll copy data into this template from 3 simple reports you can generate from your accounting software.
  2. Run a report for your Income Statement By Month (Cash Basis). Use this to complete the “P&L” tab.
  3. Run a report for your Sales by Customer by Month — again Cash Basis. Use this to complete the “Sales” tab. You can skip this part if you are a retail store or do not know your customers by name.
  4. Finally, Run the Wages by Employee report (By Month and cash basis) and use that to complete the “Wages” tab.
  5. NOTE: These three tabs are for detailed planning. The template will help you fill out the Cash Plan tab where you’ll see the results. Or…if you really want to sprint through this, skip the detail tabs and see if you can simply use your reports to complete the “Cash Plan” tab.

Once you have these fundamentals, you can begin projecting the future. The template is set up for 3 prior months and 3 future months, but you could copy entire columns to make it as large as you need.

IMAGINE HOW THE WORLD WILL CHANGE

Start with the “Sales” tab. Do you believe that the COVID crisis will reduce your sales? Perhaps, as in my case, each of your customers is a bit different. I have clients in the restaurant industry that are likely to close up shop. Others, in healthcare, might actually need more help in the coming weeks.

Guess at the income you’ll receive from each customer in the coming 3 months (or more if you’re brave). And remember — this is cash basis. So if a client has been slow to pay in the past, you may want to project even slower payments in the future.

Now switch to the “Employees” tab and swallow hard. If sales decline in the way you’ve modeled, do you need all your current employees? Cut a few heads and see what happens.

On the “P&L” tab, your job is to strip out any expenses you don’t need. Extra software licenses? Slash-em. Paying for a co-working space you don’t use? Cancel it. Cleaning services? Water delivery? Cut cut cut. Project the expenses over the next 3 months or more and tally it up. When you’re done, you really only need two numbers from this page: non-payroll cost of goods, and non-payroll overhead. (Remember, you dealt with payroll above)

Put it all together on the “Cash Plan” tab. A lot of the cells will already have information in them because I built it to do that for you. But others need your input. Copy the non-payroll expenses you just calculated into the right rows.

And finally, put your bank account balance at the space near the bottom.

Cells with bold blue type are calculated for you.

When it’s done, you need to focus on available cash — the bank account balances projected into the future.

Have you cut enough expenses to survive?

Play around some more with different scenarios — showing more clients leaving (or not). See how things might go.

ACT SWIFTLY – AND IN PHASES

With a good plan in place, don’t hesitate to implement. The worst part about economic slowdowns is that you don’t see them until it’s too late. This one is different. It is here. Now. People are not eating out, going to movies, flying to vacations, shopping, or even driving. The change has been earthshaking, and the more dangerous aftershocks are on the way.

Start making calls to trim your overhead. Can you sublease some space? Can you live without delivered water? You modeled the reductions — make it happen.

Finally, separate your staffing reduction plan into phases — cutting too soon could endanger work that’s on your desk now. (But cutting too late is worse.) Decide now what the triggers are. Then stick to them.

STAY SAFE

“Stay Safe” seems to be the new touch-stone for the Coronavirus age. It applies to a company’s economic health as well as you physical health. Be conservative, act rationally but quickly. Stockpile cash. Keep selling.

I hope this model is helpful, and invite you to call or email me with any questions or challenges.

Stay safe — and we’ll see you on the other side of this crazy time.

-David

Families First Act signed — Important Changes to Small Business Paid Time Off and FMLA

We’re breaking from our usual blog format to bring you breaking news about the first large economic stimulus package from Congress during the Covid crisis.

The Families First Act has introduced paid sick leave and expanded family and medical leave to small employers.

President Trump signed the bill late on Wednesday, March 18, 2020.  It is set to sunset on December 31 of this year. In the meantime, it creates broad new responsibilities for small business owners.

If you have fewer than 500 employees (yes, you read that right — FEWER than 500 employees!) you MUST comply with these new rules by April 1.

The new bill has two parts: 

  • Emergency Paid Sick Leave 
  • Emergency Paid Family and Medical Leave Expansion 


PART 1: Emergency Paid Sick Leave Act 

  • Applies to ALL private employers with fewer than 500 employees 
  • Applies to all government employers regardless of size 
  • Full and part-time employees are covered 
  • Employees are NOT required to have obtained a minimum length of service to be entitled to paid leave 
  • Full-time employees are eligible for two (2) weeks (80 hours) of paid sick leave 
  • Part-time employees are eligible for two (2) weeks paid leave — the number of hours they will be paid is based on their average number of hours worked in a normal 2 week period (use 6-month average if hours fluctuate) 

NOTE:  This time is for true health absences only. Other ‘furloughs’ or layoffs are covered by state unemployment laws, many of which have already been amended to be more leinient during this crisis.

Employees may use Emergency Paid Sick Leave for the following reasons: 

  1. To comply with local/state/federal quarantine or isolation order 
  2. To self-quarantine, if employee has been advised to do so by healthcare provider 
  3. To obtain a medical diagnosis or treatment if employee is experiencing symptoms of COVID-19 
     
    **Total paid leave for items 1,2, and 3 above is capped at $511 per day and $5,110 in aggregate.
     
  4. To care for an individual who is advised or required to quarantine (not limited to family members) 
  5. To care for employee’s child if school or childcare provider has been closed or is unavailable due to COVID-19 
  6. To care for a similar condition, as determined by Secretary of Health and Human Services 
     
    **Total paid leave for items 4,5, and 6 above is capped at $200 per day and $2,000 in aggregate.

PART 2: Family and Medical Leave Expansion 

  • Applies to ALL private employers with fewer than 500 employees 
  • Applies to all government employers regardless of size 
  • Full-time and part-time employees are covered. 
  • Employees must have 30 calendar days of service before the first day of leave to be covered by family and medical leave expansion 
  1. Employers are required to provide up to 12 weeks of job protected leave under FMLA for COVID-19 
  2. The first ten (10) days of FMLA leave may be unpaid; however, employees may choose to use accrued paid leave (employer cannot require) 
  3. After the first ten (10) days, employer must pay employee not less than two thirds (2/3rds) of regular rate of pay.  Employees who work part-time or irregular hours are paid pro-rata based on the number of hours the employee worked in the prior 6 months before taking leave. If employee has worked less than 6 months, then use the reasonable expectation on the number of hours the employee would have worked. 
  4. Total paid leave may not exceed $200 per day and $10,000 in aggregate 
  5. Employees taking this leave are entitled to job protections similar to regular FMLA 
  6. Employers with 25 or more employees will have same obligation as regular FMLA to return employee to same or equivalent position after returning from leave. If the employee’s position no longer exists due to economic downturn, the employer must make efforts to return employee to work for one year after the leave. 

**There is an exemption for small businesses with less than 50 employees if requirements would jeopardize the viability of the business. 

Tax Credits for Paid Sick and Paid Family and Medical Leave 
Employers are entitled to a refundable tax credit equal to 100% of the qualified Sick Leave wages and Emergency Family and Medical Leave wages paid by employers for each calendar quarter. The aforementioned caps on the wages will apply to the tax credits. 

Testing for COVID-19 
Private health plans—including insured, self-insured, and grandfathered—must provide coverage for COVID-19 diagnostic testing and related services to employees and covered dependents without cost sharing (deductibles, copayments, etc.) 
 

And More…
Here’s a good source from a law firm that has much more detail on the FFA.

This is a comprehensive piece of legislation and there are other sections that deal with government programs, etc. Much of the implementation will rely on further guidance.

Nonetheless, it is imperative that all small business owners make plans now to provide the much-needed sick and FMLA time to employees who are impacted by the Corona Virus.

Here’s to (y)our health.

The Fuse Crew