On Thursday, August 27, 2020, LQD Busines Finance hosted a webinar event open to the public- “Protect Your Business Through the Pandemic Webinar.” George Souri, CEO of LQD Business Finance discuss managing a business during the COVID-19 pandemic, how to maximize on PPP Forgiveness as well as go into detail on cash flow management.
With a lot of information surrounding the COVID-19 pandemic, there is limited information and resources provided to small businesses on how to navigate through the tough times and come out on top. CEO, George Souri, covers a vast majority of these topics in great detail.
Some of the high-level topics include:
The Importance of Establishing and Maintaining Cash Flow and Liquidity Model
Look at your “cash conversion cycle,” which is the number of days between when you pay for goods and services your use and when you get paid for the goods and services you sell. The longer the “cash conversion cycle” the more cash you will need.
Some major factors that affect the “cash conversion cycle” include:
- Reduced sales due to reduced demand
- Reduced sales due to the inability to source inventory
- Customers taking longer to pay
- Vendors requiring payment upfront
So what does your business need to have to move forward?
- A cash flow model (not a cash flow statement)
- A defined process for entering, reconciling, and reviewing relevant data on a weekly or more frequent basis
- Discipline and willingness to learn
How do you calculate Liquidity?
Start: Cash on hand
+ Cash value of Cash Equivalents
+ Cash Value of Accounts Receivable and Inventory
– Value of Doubtful Accounts and state Inventory
– All accounts payable and accrued expenses due within the analyzed time period
– All short- and long-term loan payments due within the analyzed time period
– Expected cash operating losses expected within the analyzed time period
=If your liquidity is less than 0, you don’t have the ability to meet your obligations
Leverage vs. Debt: How to Think About Borrowing Correctly
Leverage is debt that focuses on growth and opportunities. When thinking about growth capital and debt, you ought to focus on the availability of capital, the flexibility of the capital, and the profit the borrowing enables you to make – not just the rate.
In a downturn, debt is viewed more as an expense ideally minimizing expense as a key consideration.
Paycheck Protection Program Challenges
Restrictions and Complications
PPP funds can only be used for specific expenses and only during a particular time period. Forgiveness application is complicated and poses significant challenges, as do the ongoing amendments to guidance from SBA. Different rules for business owners and self-employed. Recent guidance requires pro-rata rent calculations.
Resource Requirements and Constraints
Currently, calculating and documenting the forgiveness amount will require lenders and borrowers to endure hundreds of hours of document management, manual data entry and calculation, and eligibility verification. Most banks do not have the systems or human resources required to effectively manage the documentation and calculation demands of PPP forgiveness at the significantly increased loan volumes, and failure to effectively do so may have serious consequences.
Payroll Processor Reports are Incomplete
PPP reports being offered by payroll processors do not perform the comparative and FTE payroll calculations required and do not address the non-payroll expense reporting requirements.
Existing Tech Solutions are Limited
Existing technology solutions depend on API integration. But several aspects of the required reporting cannot be accessed by API and cannot, therefore, be handled by these solutions. Additionally, existing technology solutions cannot handle the challenges of small business reporting and borrower support.
Souri covers a variety of other topics at length. You can watch the full recording of the webinar below.
If you are interested in learning more about LQD Business Finance, looking to connect with a team member, or want more information on the PPP Forgiveness Platform, connect with us HERE.