How-to Preserve Cash Flow… Or What’s Left Of It

CORONAVIRUS FITNESS BUSINESS_CASH FLOW

Follow us on YouTube and click to watch Eric discuss the topic here!

 

This is the first in a special COVID-19 series of blogs and videos to help our clients and other fitness business owners through these difficult times.

First and foremost, our heart goes out to all closed fitness facilities, and most especially to all who are sick or have loved ones that have been affected by COVID-19. We are thinking of you and are here to help in any way that we can.

With this series, we hope to give you reliable information about COVID-19 that is unique to the fitness industry from a finance and government perspective. There’s certainly a lot of operational overlap for what to do in this downtime – how to talk to your staff, how to retain members, and how to manage ongoing costs – but with this series, we will focus on the effects of COVID-19 from an accountant’s perspective, which may be unique to other fitness industry support or consulting concepts out there.

 

Recommendation for closing

First things first, if you missed our previous blog and email, we recommend closing down your fitness facility if you haven’t already done so. You can read more about the importance of closing your facility and the consequences of becoming patient 31, here.

We know closing your fitness business may seem like the last possible thing you can do, but for the time being, it’s best for your reputation as a business and the population as a whole to close down shop for the next 8 weeks, minimum.

coronavirus fitness industry advice

 

Stay Optimistic, But Realistic

We will take a page from our Motivational Monday posts and say, “we all grow through adversity.” And we are absolutely going to make it through this. Through difficult times there is opportunity to be found, and we’re going to help you find those opportunities.

But we would be remiss if we didn’t recognize that there will be some studios, some fitness instructors and some business owners who have been lifelong fitness advocates who aren’t going to make it through the other side of this without, unfortunately closing their business.

We hope to prevent that and support you through this time. But we want to be realistic in our recommendations & will continue to be a source of pragmatism throughout these tough times.

Several municipalities have put in place 15 to 30 day recommendations or even forced closures due to social distancing measures that the CDC recommends. This may give a false sense of hope that there is a light at the end of the tunnel within 30-days’ time.

 

Prediction: However, we personally believe that we should prepare to ride this out for the next 8 weeks, minimum, and possibly up to 12 – 16 weeks in all likelihood.

 

Throughout these next tough weeks and months, we’re going to focus on bringing you content from different areas and across multiple topics. As it is a developing story, we want to insert that we reserve the right to change our opinions as facts develop, depending on future and ever-changing developments.

Today we’re talking cash flow, and what you need to do to preserve and retain it for yourselves through these difficult times.

 

 

The Elephant in the Room – Cash Flow… or What’s Left of it. 

The big elephant in the room – what happens if we don’t have enough money?

Cash flow is essentially the money in your bank account and how it flows in from your revenues and out to pay your expenses. If you don’t have enough money in the bank to pay your expenses, you can get in quite the pickle.

To meet demands when expenses are greater than revenues business owners have to decide to either:

  • – borrow

  • – not pay bills

  • – wait for more income to come in

  • – wait to pay bills

We’re going to see revenue numbers drop substantially over the coming weeks, if they haven’t already done so. That’s obvious during a time of closures, quarantines, and member cancellations. The reality in the fitness industry is that revenues never exceed expenses by large margins under normal circumstances, so a 10% or 20% drop in revenue can drastically affect our bottom line.

 

Strategies to Conserving Cash

When we say cash flow – we don’t mean stuffing dollar bills under your mattress. We just mean keeping enough money in your checking account to be able to pay for your critical expenses, such as rent or payroll (no, not toilet paper – that’ll come later in our post). These are the expenses you can’t put on a credit card if need be.  

 

Action Item: Our recommendation is that you retain as much cash as possible in your business and personal lives.

 

Even if you don’t need an abatement on any of these items and you have plenty of cash stockpiled,  we still recommend that you take the actions below to preserve your cash flow now, so that however long this may last, you will be able to cover your critical expenses should the time come.

So, let’s talk about where we can cut to retain more cash.

 

Rent

The biggest expense on everyone’s minds right now is rent. We’re going to show you what rent abatement looks like and how to go about it. Our full rent abatement guide and downloadable script are available now.

Right now, landlords are not sure how to handle this unprecedented time either.

 

Prediction: Landlords will almost certainly be weary to initial requests as of this writing (March 19, 2020), however, as time goes on and the reality of the epidemic becomes clearer all landlords, lenders, and credit card companies will offer more flexibility and understanding.  One thing is certain, a lot will happen between now and when rent is due April 1st that will force landlords across the nation to help in a time of need.  Most landlords will need their tenants more than ever too.

 

Action Item: We urge you to hold off on paying your April 1st rent, if you haven’t done so already, and turn off any auto pays until you get that rental abatement request.  At first, we’re just going to look for an initial one-month abatement or deferral, and then reassess.

 

 

Loans

Just like rent payments, you are going to request an initial one-month abatement or deferral, and then reassess.  Many SBA loans have a provision for a 90 day (3 month) abatement that we’ve had clients already approved for this week.

Stay tuned as we have a dedicated blog and video to cover loans and lenders. For now, turn off any auto pays you have and wait until the next payment is due. This goes for your personal loans too – mortgage, car payments, etc. – hold off for now.

 

Prediction: There will be interest and loan abatements granted by almost every lender.  These abatements will be supported by the federal and state government relief measure yet to be passed so that your small business administration loan, SBA loan, or other loans that you have can through a period of deferral or abatement.

 

Action Item: Talk to lenders and request a deferral. More help is coming in this area over the next few days.

 

Credit Cards

Credit cards are easier to manage as you can push off full payments and only make the minimum payment for now. We predict that interest-free periods are coming to help individuals and businesses throughout this difficult time.

For now, use your credit card to charge expenses in order to free up as much cash as you can in your checking account. (This goes for your personal credit card and personal checking account as well).

You may possibly incur interest charges down the road, but we believe during this initial 30 to 60 days, there should be very low interest periods to help people through these difficult times.

 

Action Item: Preserve your checking account as much as possible. Have your credit card balance grow and continue to only make the minimum payment.

 

 

What other expenses can you cut?

We need to say: payroll must be paid to staff no matter what. You must pay your employees during this difficult time. As much as we would love for you to retain that cash flow, payroll still needs to be paid to employees and on the normal timely schedule. We’ve even seen some of our clients pay early and that’s very nice of them during these troubled times.

 

Action Item: Pretty much every expense besides insurance and payroll of critical staff should be cut.  There are exceptions but they are very few and far between.

 

Aside from payroll and insurance, we’re really advocating that the bar starts at zero and you add necessary expenses back in incrementally as we go.

If you’re still operating virtually, you are going to continue to have operating expenses, however, much less than before.  You may be bringing in some revenue and you may have some payroll costs, but you still want to start at zero and then calculate your new restricted budget.

We will have a video taking you through this process in the upcoming days. In the meantime, you can go ahead and get started on your own by reviewing each line in your bank statement or your accountant’s general ledger (a general ledger is a list of expenses that’s categorized by each of your expense accounts)

 

Action Item: Review all of last month’s expenses.  Literally go down line by line, cross off all expenses that you don’t absolutely need. This should be most all of them.

 

If you’re one of our clients, please feel free to meet with us. Drop us an email and we can go through your expense ledger line by line.

 

Stay tuned for more information

At the end of the day, most fitness businesses will make it through these trying times. If you’ve read this far, chances are that you are the type of business owner that is going to make it through to the other side.

 

Prediction: With the right optimism and outgoing spirit, along with taking the right action and not viewing from the sidelines, you are going to come out of this and be better for it.

 

Stay tuned for additions to our COVID19. We’re going to cover several topics in the coming weeks including:

 

As always, if you have additional concerns or need to speak 1:1, please reach out to our team here.

Follow our emails and YouTube channel in the next coming days and please share with any other business owner who might find this helpful.

We’re here for you, and will continue to do our best to keep you informed over the next coming weeks.

 

Eric Killian

CPA & Founder | Accountant, husband, father, mountaineer.
Fitness is such a big part of who I am. Maintaining a healthy lifestyle, eating well (mostly paleo), hiking, backpacking, mountaineering, practicing yoga and Crossfit are all important cornerstones of life. But I love ice cream and cookies too much to say no!
I love helping owners make sense of their business and finding ways to grow it. It’s an honor to help you see situations, scenarios and opportunities from all sides so you can make informed decisions.

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