How to manage cash flow, debt, contracts, and obstacles during coronavirus

Many small business owners are evaluating whether they can manage cash flow and debt well enough to stay in business following the coronavirus pandemic. While cities and states have started re-opening, a quick check reveals it's anything but business as usual for small businesses across the country.

"During this pandemic, it's essential that businesses evaluate their ability to operate and generate revenue," says Josh Knauer, founder and general partner of JumpScale, a firm that helps investors improve operations at private equity companies.

Here's what he and others are advising businesses do today.

Take a hard look at your company's viability

Study cash flow, current and potential debt, contracts, and customers. It's not easy to think about worst-case outcomes, but it's essential.

"A business so wounded by the downturn that it likely will no longer be viable requires a different strategy from a business that believes they will soon return to a profitable enterprise if they can deal with past due debts and buy some time," says bankruptcy attorney Jon Long.

If you decide to close the business, determine whether you have personal liability related to the company's debt. Long says this is usually the case with certain business structures that include sole proprietorship and in situations where a creditor required the owner to guarantee a financial obligation personally.

Continue to preserve cash

By now, many have already reduced overhead and spending as much as possible. But how do you protect the cash you have left and generate even more of it? Consider credit card options.

"By paying via credit cards, small businesses can free up 30 to 45 days of cash flow, protect cash reserves, and even reduce costs by negotiating early payment discounts with suppliers. In addition, accepting credit card payments from customers can shield businesses from delayed payments when customers don't have cash on hand," says Sameer Gulati, president and chief operating officer of Plastiq. The company recently introduced a way for businesses to accept card payments easily and safely without having to pick up the processing fees.

Re-negotiate contracts

Contact everyone you've contracted with to discuss revising payment terms, reducing services, or canceling completely if new circumstances mean you no longer need it.

"For many small businesses, the first call should be to their landlord. Many are offering rent deferral, where the rent due now is tacked on to the end of the lease. Some are even offering complete abatement for a month or two," says Adnan Akhand, accounting services partner at business advisory firm BX3.

Eric Steiner, managing member of Steiner Law Group, LLC, agrees, adding, "Landlords are suffering, too, and are therefore more inclined to negotiate rather than litigate the issue, and may be willing to provide payment deferments."

Apply for a low-interest loan

Unless the federal government renews the Paycheck Protection Program (PPP), business owners will have to find other reasonable lenders to help them manage cash flow. Start with the U.S. Small Business Administration, which currently offers three CARES Act funding options besides PPP in addition to its traditional programs.

"The SBA loans are offered with incredibly generous terms with interest no higher than 4 percent, and repayment terms of up to 30 years with a deferral for the first year. While most of the SBA programs require repayment, it is still some of the cheapest capital to which a small business will have access," says Akhand.

Finally, seek professional assistance when considering big decisions that might include filing for bankruptcy or transitioning to different products or services.

"I have no doubt small businesses will be able to come through COVID stronger than ever, yet reaching that point will require some hard decisions," adds Akhand.