For 12 months or more, you will need C-A-S-H moving through your business. Cash burn rate is the rate at which a company uses up its cash reserves or cash balance. In this environment, you will burn cash as fast as you can make it or acquire it.
You can’t rely on one source in times of upheaval. I recommend you make and keep a list of all the places you can access cash:
- The institution where you do your business banking
- Your personal bank or credit union
- Credit cards
- Your personal lines of credit
- Your personal retirement accounts
- Other banks where you have not done business
- Other institutions and organizations that lend money
- Your trade association
- Your personal insurance policies with cash value
- Government and business programs
- Homes and vehicles to sell or refinance
- Other personal assets with a certified appraised value
- Friends and relatives
- Prospective partners or investors
- Even customers
- In business or out of business? Pick a future. Grow or go.
- Borrow, or pay as you go? No matter whose money you use, you will burn through it for months or years until the game board settles out.
- Your personal money? Scrutinize your balance sheet. Know your owner’s equity numbers and ratios. Develop a pro forma for the next 36 months. Talk one-on-one with your banker about your personal financial situation, even if you think you have a cushion. Equity doesn’t buy your groceries.
- Strip down? Lighten your load? Real estate. Equipment. Vehicles. Inventory. Jettisoning assets may reduce your bottom line but also may devalue your business if you decide to sell it.
- Renegotiate? Deferrals? Know where you stand. What’s today’s financial strategic playbook for your lenders? Do you have one? Are you meeting and leveraging the 5C’s of credit? Character, capacity, capital, collateral and conditions. Reread existing contracts and leases. Look for balloon payments and penalties that might be triggered if your financial situation or ability to perform changes. Get everything in writing if asking for a deferral. Meet with equipment vendors and come to an agreement that is signed by all parties. Have your experienced business attorney review new or revised contracts. You may pay less in the long run if you keep favorable contractual terms but pay more in fees. Focus on terms first, price second.
- Extensions? Not likely. Suppliers are requiring pre-payment, even if delivery is not guaranteed or there are shortages. Deposits, CODs and net 30-45-60 are done. Suppliers and their supply chain have their own cash flow concerns.
- Prepare to ask for mercy? Read all the info and gather documentation beforehand. Appointments are quick. Explain extenuating circumstances in writing. Banks, lenders, leasing companies and anyone dealing with contracts will have specific things they can and can’t do. Regulations are changing. Don’t play it by ear.
- Pray for a government bailout? The government is moving fast and leaving a wake of unintended consequences. Don’t get too excited about the prospect of free money. Understand what you are agreeing to, and read the fine print. Free is not free.
- Transfer part of the business to a well-funded friend or family member? Bring in a partner for a cash infusion? Adding partners or investors can be fruitful, but it also can bring stress, debt, lawsuits and the end of friendships. If you choose this route, don’t wing it.
- Sell to a qualified buyer? Buyers need to line up cash. Due diligence takes time. Banks and appraisers are busy, and everything takes longer. To get started, go to my website at RockLaManna.com and complete the free VBS valuation tool. Knowledge is power.
- Restructuring, insolvency, bankruptcy? The legal and financial specialists in this realm see what they expect to see. They’re not experts in label converting and flexible packaging. They don’t understand your equipment and customer mix. They don’t know who’s buying companies like yours and why.
Your hardest decisions will come when you have to reveal your financial performance while asking for help. Humble yourself. If you don’t ask for help and make adjustments now, you won’t make it through to the other side.
Ready for the burn? The alarm bell is ringing. The fire has just begun.
And I can help you with your fires. Earlier this year, I announced the launch of LaManna Consulting Group (LCG). Working with industry experts, the goal at LCG is to help print business owners maximize value, optimize operations, and forge a path in uncertain times. We prides ourselves on 45 years of experience and hands-on coaching. Check out LaManna Consulting Group and The Printer’s Edge podcast at RockLaManna.com and complete our free VBS valuation tool.
Rock LaManna helps label and graphics company owners make better decisions. If you are ready to sell your business or improve your bottom line, integrity matters! Email Rock@RockLaManna.com for a confidential discussion about services available from the LaManna Consulting Group.