COVID-19: SMB Economic Standings 6 to 8 Weeks Into U.S. Economic Crisis

As I write this in mid-May, almost every Florida CFO Group client has been impacted by the economic shutdowns / slow-downs that have arisen from the COVID-19 pandemic. It is already clear that there are several learnings and ongoing challenges that each company, though different in many ways, much address as it imagines the future.

An apropos quote comes from Winston Churchill, November 1942, who said, "This is not the end, it is not even the beginning of the end, but it is perhaps the end of the beginning."

Beginning, middle, and end. The beginning seems to have been the realization of the extent of the medical crisis, the curtailment of economic activity to lessen the pandemic, and the Federal and state government responses to these economic impacts.

Focusing sharply on Small and Mid-sized Businesses (an "SMB"), the greatest impact was the loss of revenue either by fiat or due to sharply dropping demand. The CARES Act created programs to aid SMBs and their employees, including the Payroll Protection Program (the "PPP".) As soon as the PPP was created, each of the Florida CFO Group partners got busy with their clients analyzing the benefits and constraints of the PPP as compared to the Economic Injury Disaster Loan (the "EIDL") and various other programs such as tax credits, payroll tax deferrals, and other programs.

Ultimately, the Florida CFO Group worked with over 45 clients and 20 banks to analyze alternatives, apply, and obtain PPP loans.

So, are we done? As Sir Churchill said so long ago, far from it. The PPP loan is in large part a short-term solution in that it is intended to allow companies to pay payroll and related costs for 60 days after the loan is obtained, and not later than June 30, 2020.

What happens after June 30? Well, quite a lot. Many companies that have been shut down will still be in the process of re-opening. The financial position of many SMBs has been substantially degraded and most feel it will take months to years to recover. And of course, there is the ongoing risk of further disruption based upon the course of the pandemic and health policy. All of this demands careful analysis and planning.

Another near-term priority for those companies that obtained a PPP loan will be to document and formally request forgiveness of their PPL loan. The amount of payroll, benefits, utilities, and mortgage interest or rent paid within the eight weeks after the loan is received must be documented and tallied. Any amount not forgiven will need to be repaid over 18 months following a 6-month grace period.

While several SBA / Federal programs may still be available, it is critical that each business understand its cash flows clearly and take steps to maximize its financial flexibility and stability.

Probably the best advice is to review each area of your business critically. Pertinent questions may include:

  • What level of cash reserves or liquidity will the company have as it begins to resume normal operations? What are the costs of re-starting?
  • What is the expected course of revenue and cash flow recovery?
  • Is the business incurring avoidable costs? How can they be eliminated?
  • Will company banks, trade creditors or landlords provide relief as the company re-opens and begins the recovery process?
  • Are there planned investments that should be delayed – or perhaps accelerated (e.g., if economic changes bring unexpected opportunities)?
  • Are there changes in the financing, capital sources, or ownership of the company that should be revisited during these uncertain times?

Strategic, financial and cash planning are difficult, but are particularly urgent today.

So when we will be done? This is the trillion-dollar question that nobody can honestly answer. The only rational approach is to be informed, vigilant, and analytical and to plan under a range of operating scenarios.

Just like every economic downturn – from the great depression to the great recession – there will be an end. Attentive management will help each SMB achieve the best possible outcome when the COVID-19 pandemic comes to an end.

Here at the Florida CFO Group, we are experts in company analysis and scenario development. If you need assistance with your planning, please contact us.

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