Planning your business future and the pandemic

2020 calendar with the months of March through November all scrambled together

One of the most basic but difficult tasks in business is planning the needs of the future. In normal times, a company would look at trends based on how its business performed during the same period during the last two or three years to determine year to year growth. Tracking trends can also indicate seasonal bounces and slumps, allowing for budgeting of human resources and cash.

There are two strong forces that play against each other in business, cash outflow, and inflow. A reasonable budget, along with predictions based on past performance, allows business owners to balance anticipated daily cash sales, accounts receivables, and accounts payable.

However, 2020 has been anything but normal and past trends are about as useful as an umbrella in Las Vegas during monsoon season. Among the most challenging aspects amidst government-mandated shutdowns and phased openings have been predicting staffing and inventory needs. Once businesses reopened, it has been a guessing game as to how many customers would brave the threat of COVID-19 for a little escape from the quarantine.

What is the solution for getting through 2020 and planning for 2021?

Politics aside, the COVID-19 pandemic has completely thrown all budgets into a tailspin. Both the closing of retail businesses and the tiered reopening and reduced occupancy have seen retail revenue levels drop dramatically. Even though retail businesses have reopened, owners still face the difficulty of predicting revenue as customers continue to be cautious about spending much time inside among a crowd of people.

According to a report by TransUnion, the pandemic is a financial drain on 57% of Americans, with the most significant effect on Hispanics (68%) and African Americans (62%), compared to white consumers (54%). The average amount of spending money for consumers is $874.00. That means, even if consumers do want to shop for consumables or enjoy an evening out, most cannot afford the luxury.

Business owners have a little more control over the expense side of the ledger, but as the pandemic has dragged on and revenues decrease, business owners are faced with some tough decisions as to what takes priority.

The most challenging decision involves employees; pay cuts, scheduling, and layoffs. Payments for Rent/Mortgage, IRS, and utilities take priority over suppliers. However, keeping your supply chain alive and maintaining a “preferred” status with your suppliers can be critical.

To better prepare for the effects of this unprecedented period in modern economic history, PriceWaterhouseCoopers LLP (PwC) published an informative piece on Managing cash pressures due to coronavirus disruptions and advises business owners perform a few analyses to determine incremental measures based on financial needs.

  1. Understand your minimum cash and liquidity requirements.
  2. Establish a robust short-term cash flow forecast and run multiple scenarios
  3. Evaluate customer credit risk in the current environment
  4. Evaluate non-essential payments

In March of this year, the U.S. Congress passed legislation to help “essential” workers, affected businesses, and American families through this pandemic. Some of those funds are still available, and if your company has been adversely affected by the pandemic, you may qualify for one of the Coronavirus Funding Options through the U.S. Small Business Administration.

On August 8, President Trump issued an executive order to extend enhanced unemployment benefits through the end of the year at a rate of $400 per week, with each state paying 25% of that cost.

Trump’s executive order also provides for payroll tax relief and directs the Treasury Secretary to use his authority under Internal Revenue Code Section 7508A to defer the withholding, deposit, and payment of the employee share of individual payroll taxes (the 6.2% OASDI payroll tax or equivalent Railroad Retirement Tax Act taxes on employees) on wages or compensation paid during the period of September 1, 2020, through December 31, 2020. The payroll tax deferral would be available to employees earning less than roughly $100,000 per year ($4,000 pre-tax paid every two weeks, or the equivalent).

Since this Payroll Tax Relief Executive Order is entirely voluntary, many companies are weighing their options as to whether or not they want to participate. Of concern is that most accounting programs used for processing payroll are not set up to accommodate this type of program and will require a lot of burdensome manual calculations for those businesses with a lot of employees. Also part of the consideration is the fact that even though payments have been deferred, both employers and employees should bank those funds so that they are available at the end of the year when, depending on the outcome of the presidential election, they might have to be paid.

PwC has issued a helpful analysis of the complications involved and suggestions if you plan to take advantage of the payroll tax relief program.

At Business Finance Corporation, our goal is to be a resource and partner in your success. We try to give you the information and tools you need to make the essential business decisions and urge you to consult with your corporate legal counsel and accounting professionals to discuss any information we provide. If you need assistance in turning your Accounts Receivables into immediate cash, please contact us on the web at https://bfc.vegas/ or call 702-947-3800.

Your Partner in Success,

David Cabral