In this episode of #TheMoneyFactor, CEO Ian Varley has on guest Steve Nevin to discuss managing small business cash flow and how PPP Loans affect cash flow management. Below is a transcript of the video:
Welcome to The Money Factor. Today we’re going to be talking about cash flow management and PPP Loans. I’m Ian Varley CEO of Eagle Business Credit. I’d like to welcome back with me here today Steve Nevin from B2B CFO. Steve’s company helps a lot of small businesses and larger businesses as well with their cash flow management needs. We’re going to talk a little bit about the book that you’ve come up with, “The Danger Zone.” I think there’s some really good information in there so thank you, Steve.
Do you Know How to Track Cash Flow?
Okay well Ian, thank you for that introduction. It’s a pleasure to be back here on The Money Factor. Today more than ever cash flow is what keeps business owners up at night. It’s like fuel in an airplane. You can never have enough of it unless of course you’re on fire. Cash flow is something that often business owners don’t know how to track. They don’t understand why once their sales start to increase very often their cash dwindles. They’re saying, “well how can that be? If I drive my sales, I ought to have more money in the bank.” But in fact, the difference between cash and sales is really timing: how often and how quickly you get paid by your customers versus how often and quickly you have to pay those that you owe money to.
What Happens When You Have Insufficient Cash Flow?
When a company is growing fast and they exceed their available cash then the future of the company may be in jeopardy. You’ve got to manage cash. It’s surprising how many business owners do not understand how to forecast cash flow. These are entrepreneurs who have started companies before and they can put together a projection of sales and expenses. However, they really don’t understand the concept of cash flow.
How Can you Manage Your Cash Flow?
So, this is one of the key areas that B2B CFO, our partnership, focuses on with our business owner clients. We help them understand how to forecast cash. We direct them towards areas that are key items where they can preserve cash, so for example receivables finance. Which is what Eagle does. So, we often come in there and see a business where they’re not getting paid until 45 to 60 days out. And when I ask them about that they’re saying, “well we don’t want to call the customer. We’ll insult them.” Which always blows my mind. We find that all the time. I mean, it’s true. They’re happy to take a new order. They’re less happy to talk about payment, and it’s it’s just a polite phone call.
How Can You Get Paid Faster by Your Customers?
All you have to do is ask about the status of the invoice. It’s not a collection call. We have some people that use Eagle Business Credit just for that. Invoice factoring services, what we do here at Eagle, really help them to manage those receivables. We make sure that they are bridging that gap between sale and collection. You’ve issued the invoice with credit terms because you want to remain competitive and you’re growing, but you want to make sure you have the available working capital to support that growth. So, all of your cash flow and your working capital is getting tied up in your receivables, and it’s a problem.
Most companies do not have people who specialize in receivables collections. They don’t really know how to do it. So when we walk into a company and we see that as an opportunity to improve cash flow we make an assessment as to “is this a company that lends itself to a tool like factoring?” In some instances the problem isn’t that severe, but they could still shorten the time frame of collections by a week or two just by implementing some basics in collecting. Some common sense approaches to just managing cash flow go a long way.
When Should You Pay Your Vendors for Good Cash Flow Management?
Now conversely, while companies we see are being paid late by their customers, they’re usually very early paying their vendors. This further exacerbates their cash. Often, they’re very proud of their reputation in the community, and we get that. However, we have to educate them on what our typical standards are for payment times with business owners. In certain circumstances we go through the payables, and we can recommend extending some payment terms out based on the criticality of that vendor. So, we want to try to get payables timing and receivables timing in sync, matched up.
How Do PPP Loans Affect Your Cash Flow Management?
Let’s switch gears and talk a little bit about PPP, payment protection program. Obviously very topical right now. A lot of companies in difficulty and the government have come up with some great programs right yeah they really have, and while I’m not a firm believer that government has all the answers but in this case the PPP loan while it’s not perfect has actually done a good job in providing very needed cash flow right to business owners.
Can You Get a PPP Loan?
As you may know there is now an opportunity for a second draw for a PPP loan. So, if you’re a company that’s taken a PPP loan already and have applied for forgiveness, you may qualify for a second PPP loan. The big qualifier for the second loan is that you must be able to demonstrate that you have suffered a 25% or more reduction right in revenue for any 2020 quarter versus 2019 quarter. If you qualify, the application couldn’t be easier. The banks have usually populated the portal for you to do this and so all you might be asked to do is upload some QuickBooks statements supporting the quarter where you have the 25% reduction, but then you have the opportunity to get an equal second draw on PPP. We think that forgiveness will be available if not more immediate. There are actually other benefits too right now under the Cares Act that we’re working with our clients on.
Do You Need Help Getting a PPP Loan or with Cash Flow Management?
So first of all, let me put in a pitch for B2B CFO. We have been helping owners across the United States qualify for the loans and to achieve forgiveness. The last account we had was just under a million dollars total of PPP loans to a variety of different clients. We are happy to help them because this program does provide needed cash flow, and it has been effective to keep the doors open for companies. It really has, and again first round there was a lot of uncertainty and a lot of confusion. Second round has been better. The communication has been better, but there are some additional strings to it. Not everybody can benefit from it, but it certainly is beneficial to a lot of our clients. It’s been that additional boost that they’ve needed to get through these difficult times.
Do You Need Better Cash Flow Alongside Your PPP Loan?
Good news is it works alongside what we do here as well at Eagle. You know we can get the subordination from the SBA, and obviously if you get the forgiveness or if even if you choose to carry on with it maybe you can’t, you spent the money on some stuff that you can’t actually qualify for the forgiveness, it’s a one percent loan at the end of the day. Good cheap money. And factoring will work alongside PPP Loans. We can get the subordination from the SBA so yeah we’ve encouraged it. People have looked at it. It’s helped a lot of folk out. Hopefully the economy starts to turn around and we don’t need another round, but we’ll be watching it very closely.
Cash Flow Management and PPP Loans for Small Business Owners
One of the areas of expertise that we work with our clients all the time is capital formation. So you know putting together what you need for an effective bank packaging loan or factoring. Either way we’re in the business of helping business owners not only preserve cash flow but get the capital that they need. So that they can move forward.
Well that’s about all we have time for today on The Money Factor. Thank you Steve as always for coming in. If your business is not prepared for growth or is having some cash flow difficulty, where can they reach you Steve for some advice? Well our national website is b2bcfo.com that’s spelled ‘b’ the number two ‘b’ cfo.com and yeah we’re all about strategic advisory services for the business owner to move forward. So if you are encountering difficulty please look us up and give us a call. Thank you very much again I’m Ian Varley CEO of Eagle Business Credit. Thanks for watching The Money Factor.