Bounce Back Loans

What Should Business Owners Do After They Run Out of Bounce Back Loan Money?

Just a few short weeks ago, businesses that received funding during the first tranche of the CBILS and Bounce Back loan programs were considered fortunate. But now, many of those businesses have reached the end of their loan money, and business still isn’t back to normal. Now what should they do?

There are a number of reasons why the loan money might not have been enough:

  • Full or partial shutdowns continue in some parts of the country, preventing businesses from rebounding. Even though experts warned us COVID-19 would be with us for some time, shutdowns and their economic impact are lasting longer than many expected.
  • The regions that have reopened have seen a dramatic increase in the number of COVID-19 infections. Although some customers are happy to return to their pre-shutdown habits regardless of increasing case numbers, others are making the decision to stay at home a little while longer. This is slowing down the rebound many clients were counting on when their states allowed businesses to reopen.

Whatever the reason, no doubt there are many business owners who are concerned about what they will do now that their loan money is nearly gone. Following are four things you can do to survive – and thrive – now.

#1. Do an Expense Analysis

You likely did an expense analysis when shutdowns first became inevitable, but that was before the CBILS and Bounce Back programs were announced. The unfortunate downside to the small business relief programs was a loss of urgency for business owners to make potentially painful decisions about their business expenses. Many assumed the loans would be enough to carry them through what they thought would be a short-term decline in revenues, and so may have chosen not to make significant changes to business spending.

If you never made changes to your spending – or if you’ve allowed business expenses to rebound since receiving loan money – now is the time to do another expense analysis. Schedule an appointment with Financial Foundations Coaching to review your P&L and statement of cash flows line-by-line to identify potential areas where they can optimise your use of cash.

#2. Determine an Income Target

At Financial Foundations Coaching, we advocate using income targeting to determine how much revenue a business needs to generate in order for the business owner to reach their personal income goals. You can also use income targeting to determine how much revenue your business needs to generate in order to remain viable during times of economic upheaval.

After completing an expense analysis, reverse engineer what your total revenue will need to be in order to support your expenses. Don’t forget to include the owner’s pay (draws/distributions and payroll,) taxes, and contributions to a business savings account (more on this in a minute) when you calculate the required revenue.

Once you have targeted your income, brainstorm what you can do to hit this target. Is a price increase warranted? Can you easily add a product or service to help you hit your revenue goal? Would now be a good time to invest in some advertising to increase sales volume?

#3. Build a Multi-Layer Contingency Plan

Income targeting will tell you what you need to do to keep your business viable now, but what if things improve – or devolve – significantly?

Look to build a multi-layer contingency plan for your business. How will your business look if you exceed your income target? What expenditures can you add back, and when? And how will your business look if you don’t hit your income targets? What additional changes will you need to make, and at what point will you need to make them?

If you’re up to it, this is also a good time to identify the point at which your business will no longer be viable. Even in the best of times, many business owners hold onto their failing companies much longer than is financially healthy, ruining their personal finances, relationships, and even their health in the process. Realistically determining the point of no return before it arrives could prevent complete financial ruin and give you peace of mind that you will know when it’s time to shut down for good.

#4. Build a Strong Cash Position

I’m always in favour of a strong cash position, and I believe it’s even more important now.

Determine what your critical operating expenses are. Don’t stop with your business expenses; move past any shyness around discussing your personal finances with Financial Foundations Coaching and determine what your “survival” compensation from the business looks like. Then, form a plan to set aside a buffer of at least 3 months’ worth of cash (6 months is better) to cover these expenses.

This is easier to accomplish for a business that is doing well, but with some strategic decision-making even businesses experiencing a downturn can build a reserve of cash.

One area to consider is debt repayment. I suggest making only minimum payments on debt until the emergency cash reserve has been funded. This goes against conventional guidance, but keep in mind a bank can call a credit line at any time. If you don’t have a cash reserve, you’re counting on being able to use credit in an emergency situation, and that credit might not be available.

Also, carefully evaluate any investments under consideration for the business. If these investments won’t generate revenue very quickly, you might be better off putting that money toward the cash reserve until it is fully funded.

These are short-term solutions with the sole purpose of helping you build an emergency cash reserve. Once the cash reserve has been built, I would encourage you to resume your debt repayment and investment strategies.

Contact Financial Foundations Coaching today for a free 30-minute discovery call to see how we can partner with you to ensure your businesses success and survival and help you to regain a sense of control again over your business’s finances.