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Know your Numbers Cold

Now more than ever you need to know how cash in moving in and out of your agency.

What is your monthly burn rate?

How many days of cash do you have on hand? What’s that number if revenue cuts in half? …..what if it goes to zero?

Why is is so important? No your revenue won’t go to zero, but knowing your runway in a worst case scenario will make crystal clear the outflows that are vital to your agency. (Prepare a budget to know your burn rate inside and out.)

Revenue

You need to be looking at revenue in four buckets.

Maintain. How are you maintaining current revenue?

• Lean into your current clients.
• Where are they uncertain and how can you help them address that?
• What can you throw in to your offering drive value now?

Grow. What are you doing to grow revenue though current clients and new business?

• Get creative with your pricing & be flexible.
• Brands may be more apt to buy into a short term project, rather than engage on retainer.

Collect. Are you on top of collections and are there disruptions to normal flow?

• Maintain a close watch and look for hesitations from your clients. It may be an indicator of future revenue.
• Be careful – keep your eye on accrual sales & don’t get fooled by collecting accounts receivable.
  • You may not “feel the pain” for a few months if you are collecting invoices from last month’s service when you were profitable.

Line of Sight. What is your line of sign on future revenue?

• If you don’t have line of sight on revenue 2-3 months out, now is the time to start planning where you will cut.
• Marketing is a lagging indicator. If we see uncertainty today, you’re agency may feel that in a few months.
• With the today’s uncertainty, lack of sight on revenue is a red alert on reduced cashflow next quarter.

Expenses

Break-Even. What is your monthly burn rate? Assuming you don’t have variable costs, this is how much revenue you need to stay cashflow positive. If you do have varibale costs, you’ll need to factor those in to get to your break-even number.

Once you have your break-even revenue number, run a scenarios at various revenue levels. If revenue dropped by 25% or 50%, how much money would you be losing each month? How much would you need to cut?

Roster. Looking at your largest expense:

Based on the revenue scenarios you run, build an “essential team” from your current roster to support that revenue. You should have a reduced team roster for each scenario. The plan is not to get to those scenarios, but if you do you need to make difficult decisions. Planning roster changes in advance, will allow you to quickly pull the trigger when the warning signs show.

The payroll cost levers to pull.

• Terminate
• Fixed to variable
• Reduced Pay
• Owner Pay

If your agency can operate without certain team members, first look to layoffs. Have you been holding onto a team member in the wrong seat? Are you carrying someone who can’t get fully operational on their own? Trust your gut.

Payroll is a fixed costs that doesn’t typically go up or down with revenue. Are there any positions you can transition to an outsourced variable cost? Typically the “talent” positions are easier to fill in a variable outsourced model. Shy away from cutting too much in operations. You still need someone to do the dirty work.

For those who remain, you may look to reduce pay across the board. This can be expressed as a temporary change. It signals to those that stay, you’re all in this together.

Don’t forget about yourself. If you are reducing your team’s pay, you should be included.  Make sure you don’t cut your pay too much. You should still be the highest compensated employee at your agency. If you’re not, you’re masking larger issues that will surface later on.

Operating Expenses & Priority. Review your expenses line by line. What expenses can you do without?

If you are uncertain about next month’s cashflow, you should first be looking where you need to cut further from your roster and operating expenses.

Next, prioritize what’s left. If you are not able to go into your office, you may look to withhold your rent. The government may come in with an abatement later on. If not, you’ll have held cash for a few months and can pay it in a lump sum or payment plan down the road.

Payables. Don’t forget to budget for your payables. (Expenses already incurred, but not yet paid.)

These are your credit card balances and vendor bills.

Action steps: Call up your credit card company and ask if you can delay payment for a few months. I know American Express is currently offering a two month no interest payment window if you call. Also give your vendors a call. They are in a difficult position too. See if you can work out a payment plan or renegotiate terms.  

Taxes. When & how much?

Tax Day has been pushed back 90 days to July 15th. You can file and pay up to that date without any interest and penalty. Don’t trick yourself. Those taxes will still be due, so don’t go spending them.

Recommendation: Have your returns ready to be filed. Don’t let the due date being moved back affect you finalizing your numbers. Hold your tax payments, but don’t spend it. Move those funds into a savings account. With uncertainty of next quarter, you want to build as much cash as possible right now. If you pay that later on July, 15^th – that’s ok. You’ll still have it sitting in your savings account.

Debt & Investment

Current Debt. If you have current debt. Prioritize the debt that is personally guaranteed by you and only make minimum payments.

New Credit. I will continue to update where and how to apply for loans. As of today, congress has not finalized the avenue for where and how to obtain credit. Because of this the banks do no have direction. We are in a holding pattern until this becomes clear.

Once you have that new credit you want to set up rules for when and how you will deploy it.

• Is it for timing in collecting revenue or is it to cover an operating loss?
• Remember, unless the government forgives these loans, you’ll be on the hook to pay these down the road.

Investment. Now is not the time for investment.

• An outside investor will be looking for a discount.
• With uncertainty into Q3 and Q4, approach with caution investing personal fund into your agency. Credit avenues will become available shortly and will be of less risk to you personally.

You have four levers to pull. Which one are you pulling on right now?

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