Revenue is the key, it drives everything. Do everything you can to keep work moving ahead, invoices flowing and product going out the door; but make sure your people are taking all of the precautions necessary (see last week’s article on this topic).
If you are in an industry that is being impacted and revenue is or will be dropping off, here is a solution that I am recommending and implementing in 6 easy steps:
- Project out revenue for April through the end of the year, by month. Making the assumption that June will be the start of the come back and July through December will be back to normal. If you are in an industry that has to catch up for the lost 2-3 months, the last 6 months of 2020 will be stronger (that’s what I’m assuming).
- Determine what people you need to retain to achieve the levels of revenue you have defined in #1 above. THIS IS CRITICAL PART OF THIS FORECAST. You may need to actually list all of your employees by importance and their corresponding wage for each month April – December.
- Work up a cost of goods forecast based on #1 and #2 above. This will give you your total cost of goods and how much gross profit is available to pay overhead and make a profit.
- Look at your overhead costs, work through every line item and project/forecast out how much you will spend by line item by month through year end. Then list out all of the people that are trapped in your overhead (sales, admin, etc.) with compensation for each and determine which ones are critical to creating the resume you need to operating the company. From this, you will be able to determine how much your overhead expenses will cost by month through year end.
- Look at the difference between total overhead costs and gross profit dollars projected by month in this forecast/projection April – December. If there is a profit, you are in GREAT SHAPE. Everything should be fine, there may be a cash flow glitch due to collection of accounts receivable but that should be easily fixable.
- If there is a loss each month or for the total of the 9 month period; then it becomes much more complicated. Questions you will need to consider:
- Is the monthly projected revenue understated?
- Did you make adequate cuts in people and operating expenses? Review all of your people head count and wage costs as well as every single expense line item.
- When you get to the point where you are nearly 100% comfortable with #1 and 2 above, then you need to determine if you have enough cash on hand to fund the losses until you become profitable again. If not enough cash, then is your LOC large enough to fund the losses (will your bank borrowing covenants allow this?) or can you restructure your debt to fund the losses until you get profitable. What are you going to do, to create the cash needed to sustain the company back to profitability?
If you need help creating this forecast/projection for your company, we have the capacity and could turn this around for you in a few days. If interested, email me directly Dan@DynastyBusinessConsulting.com
For those who need information regarding unemployment. Here is the information from the Indiana.gov web site: https://www.in.gov/dwd/2359.htm
- Weekly unemployment benefit is based on the last 4 quarters (12 months) of wages times .47. An employee making $30,000 a year divided by 52 weeks is $576.92 a week X .47 = 271.00 per week (rounded down to the nearest whole dollar. Weekly benefits will not exceed $390 per week.
- An employee should receive their first payments within 3 weeks.
- Employees are not paid for the first week they file unemployment.
Beating Hitler in WW2 was a big challenge for the Allied forces. Eisenhower and his management team spent months in planning for D-Day June 6, 1941. In any major crisis, it is good to have a plan to work from and modify. We are here to help.
Have a productive week.
The Prophet of Profit