Garry Bartecki Status Report: Your Pandemic financial position
Status Report: Your Pandemic financial position
By now all dealers should understand their PANDEMIC financial position in terms of where they started (Mid-March), where they stand today and where they need to be to get fully comfortable they will come out of this situation still standing. A TOUGH ASSIGNMENT CONSIDERING NOBODY KNOWS WHAT TO EXPECT AND WHEN TO EXPECT IT.
Here is what I recommend:
Prepare budgets for three Sales Levels starting with the original budget for 2020, a second with a 25% drop in sales and a third with a 50% drop in sales, with the impact on your company depending on which revenue silos caused the most reduction. Carry out the 20 budgets to June 30, 2021, to reflect what help you may need from banks and vendors. You can adjust sales levels based on activity to date and solid expectations for your various profit silos. What you do not want to do is a plan for X and wind up at X – Material $$ in Sales. Better to beat the pandemic budget to ensure that your cost adjustments are where you need them to be.
As part of the sales exercise both direct and indirect expenses need to be budgeted to arrive at an estimated gross profit for each budget. Each manager must bite the bullet and come up with a plan and be accountable for the plan until the industry returns to normal.
Next, prepare a monthly cash flow analysis using the budget data to determine cash burn during your recovery period, and how much additional funding may be needed assuming at least an 18-month overall recovery period starting March 20. And keep in mind that cash flow is based on collections and not sales numbers. We all know that budgets are numbers on a piece of paper. Unless there is accountability to meet those numbers, you are just wasting your time. All managers must be made aware that any differences, either up or down, impact the actual cash balance reflected at the 18-month level.
This exercise will help address fixed, semifixed and variable expenses, and do not forget that the cash budget includes bank and other fixed obligations appearing on the balance sheet.
Schedule 2 meetings a week to review revenues and expenses and how they are trending compared to budget and cash flow analysis. This continues until you are over the hump.
Once the budget and cash flow analysis is under control management should be looking for ways to change and adjust the operation and business plan to eliminate non-profitable segments of the business and at the same time evaluate all systems and processes to determine what is not working and what adjustments would make them work better.
Let us face it, you need to reduce spending and optimize costs. Vendors should be approached regarding pricing and payment terms. WE NEED RELIEF FOR THE REMAINING SEGMENT OF THE 18 MONTH RECOVERY PLAN. Price reductions help if you are doing any buying. Stretching out payment terms really helps even if there is an interest charge involved. On the other hand, collection efforts and programs should be made available to incentivize customers to pay sooner than they normally would. GET THE MONEY IN WHILE IT IS STILL AVAILABLE.
Financing arrangements should be adjusted to defer principal payments. Or how about interest-only for six months. This is where those projections and cash flow analysis comes in handy because it shows that you are managing the situation and have spent the time to adjust internally to meet the challenges presented by the pandemic.
Spending, if any, should focus on areas that supply the bulk of your absorption factor. Make the effort to communicate with “profitable” customers to establish how you can assist them to get over the hump. Everyone is expecting a lot of change caused by the pandemic. Ask customers what they will be changing and revamp your product and services to meet those needs.
Every crisis provides opportunities to take advantage of poorly managed competitors. Face it, there will be dealers who do not make it and you probably have an idea of who those dealers are. You could pick up market share buying up the assets of a failed operation or by just offering superior products and services to their customer base, which may be lacking as the competitor slides into bankruptcy. If you attack the customer base that is the prudent approach. Buying the assets is another matter that under these circumstances requires the involvement and support of your vendors. Wouldn’t it be nice to take advantage of this situation that improves the profit potential of your business?
GET A HANDLE ON YOUR NUMBERS, ADJUST PROGRAMS AND FIX THE PROBLEMS BEFORE THE PANDEMIC WIPES YOU OUT!
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry
