Financial Outlook for Small Giants
In a recent Small Giants virtual workshop, financial experts from around the Small Giants Community shared insights and tools to help navigate the current economy, understand loan regulations, and plan for the future — all through the lens of purpose-driven leadership.
In this panel, we heard from Mackey McNeill of Mackey Advisors, Chris McKee of Venturity, and Wayne Titus of AMDG Financial. As you look ahead and plan how to finish the year in a strong financial position, don't miss the highlights and key takeaways from this informative conversation.
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Future Financial State of Business
As we move past the initial shock caused by the COVID-19 pandemic, what trends are financial advisors seeing in their client base? Mackey McNeill's motto has been "survive to thrive" and she's working with clients to focus on cash position and cash reserves to keep them in business. Although most haven't moved into the thrive stage just yet, she believes we're getting there and that the economic market will lift all boats.
With so many small businesses taking advantage of Paycheck Protection Program (PPP) loans, it will be critical for business owners to understand the changing rules coming out of the Treasury Department. "The rules seem to change overnight," says Wayne Titus. "The ground is shifting under our feet. I think there will be continual fits and spurts. Forward looking, the market seems to indicate that the economy is on solid footing, but most entrepreneurs don't feel that."
Although it's great to have so many loan options right now, it's important to make good business decisions and isolate your decisions from the various grants and loans you may be receiving. For example, if your revenue is down right now and you don't anticipate that changing any time soon, does it make good business sense to keep people on board just to secure loan forgiveness? Chris McKee advises owners to match their cost structure to their revenue structure and make decisions that keep your business profitable.
Now's the Time to Make a Change
As the saying goes, never waste a good crisis. With so much uncertainty right now, there's an increased tolerance for change. "Entrepreneurs should look at their ability to recreate and reinvent your marketplace in this environment," says Mackey. "It's the easiest time in recent history to experiment and make change. People aren't change averse right now — they will forgive you if it doesn't work." With the market open for change, ask yourself what is on your customer's mind.
Even better, get out there and actually ask them. Analyze what you learn and look for where your talents intersect with their needs and how you can add value. It's a great time to expand your business efficiently and look for opportunities to add revenue without too much overhead.
What to Do When Your PPP Loan Runs Out
First, take the time to understand the rules of the program — you might have more flexibility than you think. As Titus points out, the rules are constantly changing and many of the updates work in favor of the recipients. For example, you may be able to elect to have your forgiveness period extended.
"Work with an advisor that knows and understands the changes and how they impact you," he says. "It can make a pretty significant difference if you're going to send money back that you could've used for expenses over the next few months." Beyond that, we may still see some changes from Congress, and there could be another round of funding for those who've already received PPP loans.
Cash management and monitoring is also critical during this time. Mackey recommends 16-week cash forecasting — it's a little tedious, but once you set it up, it's easy to update and can give you peace of mind about your cash position. Now that idle loan applications are back open, business owners can also consider those as an affordable option. "They are great for those wanting to fund a growth opportunity," says Mackey. "It's also good for those who are uncertain about their cash future for the rest of the year."
Questions & Answers
Q: I'm concerned about future shutdowns. How can I prepare?
A: Cash is king. Know and understand where your cash is coming from and your opportunities to change payment terms. We're all in this situation together, and people expect that terms are going to change. Can you get someone on a credit card payment instead of waiting to write a check?
Keep making good business decisions despite the loans that are out there. For example, does it really make sense to use these loan proceeds to keep people on payroll just to obtain some sort of forgiveness? It's better to sit back and review objectively what you need to do to triage your business. "I would never advise any client to send PPP money back in the environment we're in right now. Keep that cash reserve in this uncertain time to keep your business going," says Titus. "If you're the last business standing, you're going to get all of the business."
Q: How can we be nimble enough to respond to increasing/decreasing customer demands in ever-changing pandemic scenarios?
A: So many of the numbers in our accounting reports are in the past and behind us. It's important to be able to look forward. You should be forecasting your sales, cash, and income. It's a way to see where you're going and predict what your future will look like. "Only by looking forward and not back can you really be nimble and make your best guess," says Mackey. "Many treat good data as a luxury – it's a necessity."
She also encourages leaders to include their entire team in these exercises. Business is a team sport. Entrepreneurs often feel isolated, especially in times of crisis. Let your team help you and bring great ideas forward. At Venturity, Chris McKee practices open-book management through the Great Game of Business, which engages the team in protecting revenue and leading innovation.
McKee also advises leadership teams to put together a few different scenarios: the upside, the downside, and the status quo. Looking at different scenarios and having a plan in place for each of them allows you to be nimble in unpredictable times.
Q: How can we protect revenue right now?
A: Most people think about new customers when they think about recovering revenue. As Mackey explains, in reality, that's the most expensive and time-consuming option. Instead, think about how you can do business with people more frequently and how you can increase the average sale. How can you bundle what you offer so that people buy more? And how can you get them to buy more frequently? Focus on those two strategies to move your revenue forward much faster.
This is a time to experiment with your business model. Titus recommends looking at the expense side of your business and thinking about how you can change that up. "It's not just about the income side," he says. "It's on the expense side, too. Looking at both is what will give you a healthy balance sheet."
Client relationships are also a great way to protect revenue. "We can't grow if we're losing clients faster than we're adding them," says McKee. "We're spending the time to make sure our existing clients feel well-cared for. You can maintain revenue by protecting the customers you do have."