By Ray Radigan, Head of Private Trust, TD Bank, and Kalimah White, Senior Trust Advisor, TD Bank
The COVID-19 pandemic has affected the American economy and its hard-working people in so many heartbreaking ways.
For our clients, specifically those in cash-driven professions, including dentists, restaurant owners and others, you truly represent the backbone of this country. We understand how trying it has been having to close or reduce operations amid the ongoing attempt to limit the spread of the virus.
We understand that the economic shutdown and stay at home mandates have and continue to impact your cash flow, income and employees in major ways.
Where we once were planning for long-term success, we are now also focused on short-term planning. Your planning needs are now shorter in nature during this unprecedented environment.
This article and foundational advice is meant to help you with your business during this uncertain time. However, it's recommended that you connect with your financial manager, accountant and wealth adviser to determine options at your disposal to help you through this pandemic.
Also, this advice is separate from the current Paycheck Protection Program (PPP) administered by the U.S. Small Business Administration (SBA). That program is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and for that assistance, you should contact your trusted bank to apply.
Here are some immediate items and processes you should consider:
If you don't have a budget, create one now: Prepare a 90-day budget to meet expenses and continue to periodically update this budget based on new information affecting your individual circumstances. The goal is to ensure there are no unnecessary late fees or finance charges incurred during this time.
Conservatively assess all access to recurring income over the budgeted period: Whether it constitutes operating revenue, adjusted operating revenue given the shutdown, salary, rental income, interest and dividend payments, social security payments, pension, annuity payments or other forms of income, think about what you have coming in from every angle. Is there enough cash flow to satisfy current debts and obligations?
Line up your liabilities and debts: Categorize all required expenditures to determine when they need to be paid (30-day, 60-day, 90-day, etc.). Proactively communicate with those companies with whom you might owe money to modify payment obligations and provide flexible payment options until income streams normalize. Then, take stock of what must be paid in the coming months.
Conserve where possible: You are likely to have expenses that cannot be reduced or eliminated. But reducing and/or eliminating all nonessential expenditures during these trying times will help you to extend the life of your income and liquid assets.
Explore using assets to leverage secured lines of credit: If you are looking to bridge short-term cash flow issues, take stock of the valued assets you have at your disposal. Having access to these potential lines of credit can be critically important.
If you don't have a bookkeeper, you should hire one: This may sound like common sense, but we understand as a business owner, you are following your dream of success and most likely plugging away day after day to make this dream a reality. You may have overlooked hiring a bookkeeper or continuing to look at your business plan every week -- and then a sudden stop like COVID-19 happens.
Update your long-term plan: For those clients and prospects who do not have a plan, now is the optimal time to create a plan that aligns with their future financial goals. For those that do have a plan, it may not include potential stoppages like COVID-19. Update your long-term plan to include potential breaks in income streams so that you are prepared for the future. Reviewing or creating an estate plan is important as well.
Cash savings for future interruptions: If you're struggling during this time with liquidity, this is something to keep in mind even when the pandemic is behind us. As a rule, clients are encouraged to have six months of spending in cash when working and one year of spending in cash when retired. If there's a lesson to be learned, once we get to the other side of this, we should think about ensuring that you have enough liquidity in the future.