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Finding Financial Security for Weathering What’s Next

by Ben Spradling | May 18, 2020 1:10:40 PM

The already-lengthy list of “what ifs” that businesses need to plan for forcefully added another member when the COVID-19 pandemic halted the economy this spring. Companies operating within nearly every industry saw significant financial vulnerabilities surface in the wake of the virus. While some businesses managed to shore up their issues in the short term, having to weather another crisis could capsize their operations.

A recent survey of accredited businesses conducted by the Better Business Bureau revealed that, should an additional emergency occur, more than half of business owners do not have enough cash or credit to survive longer than 60 days. Financial security is a critical marketplace issue right now, and it’s causing many companies to reevaluate how they do business.

With a reported 30% of the business owners surveyed poised to make significant changes to their operations, many are expected to move toward business models that emphasize cash flow. CM Heating, an Everett, Washington-based HVAC company, has operated for years under a format that prioritizes cash reserves. Those savings positioned the business to withstand not only the ongoing pandemic, but many upcoming crises as well.

“CM Heating could survive several of these in a worst-case scenario,” says General Manager John Giacomi. “We made sure to save our money and not take out a bunch of distributions, so we have a significant cash cushion for things like this. It’s not ideal for us to pull that money out, but we have cash reserves for this exact kind of thing.”

Developing that cushion, though, requires some judicious action when it comes to your business’ bottom line. Giacomi explains that producing net profit doesn’t mean every dollar should be pulled from that pile. He recommends businesses build up cash reserves equal to at least a year’s worth of revenue.

Stacy Davison of Davison Roofing Inc. in Mill Creek, Washington is a fellow advocate of utilizing cash cushions as a means for staying afloat. Similar to business owners struggling to keep their operations running during the pandemic, Davison has endured previous hardships brought on by unexpected economic downturns. Those experiences turned into educational opportunities.

“We have been in business for 23 years, so we have been through the economic crisis in housing as contractors back in 2008,” says Davison. “We learned then to save. Once things get going again, set aside money for when the next downturn happens for whatever reason.”

That’s not to say savings alone will buoy your business, especially in times when an unpredictable economic outlook feels indefinite. Additional funding and financial support were shown to be the top business information needs for 60% of business owners surveyed by the BBB. Despite having cash reserves established, Giacomi and Davison both needed similar help for their businesses.

“Honestly, there is just not enough information from the SBA/government right now,” says Davison. “Business owners seem to be just going back and forth trying to understand funding but are coming to all sorts of different conclusions since there are not a lot of facts to go by.”

Davison found some facts via resources like Facebook groups specifically created to support businesses during the pandemic. Giacomi leveraged relationships with professional associations fostered through CM Heating’s accounting team to obtain information. Additionally, Better Business Bureau Northwest + Pacific offered webinars, feature articles, and other resources devoted to helping businesses more ably connect with available funding options.

“If your business has the ability to take advantage of some of the government programs out there, whether it’s the Paycheck Protection Program or the low interest loans that are available, absolutely take advantage of those opportunities right now,” says Giacomi.

As those funding opportunities shake out for many companies in the coming weeks, business owners with concerns about their operation’s financial viability can act now. Though they may seem agonizing now, eliminating expenditures and starting a cash reserve are important steps toward establishing operational sustainability sturdy enough to withstand another crisis.

“I would suggest avoiding debt if at all possible as it can snowball,” says Davison. “Cut unnecessary bills, even though that may include changing your lifestyle and making some painful choices.”

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