4 Big Things That May Impact Your Cash Flow in Fall 2020
For many business owners, the current global pandemic has caused considerable difficultly and stress. Many owners who were able to weather the storm have had to make big adjustments to ensure their cash flow remains positive, or at very least to limit the severity of their negative cash position. Thankfully, the Canadian government stepped in with some much-needed support for business owners. And we’re seeing significantly more stability today than even just a few months ago.
While this added stability helps business owners move closer towards normal, it’s now more important than ever to properly manage cash flow and plan for the future. Here are some key things that may impact your cash flow position in the fall:
1. Canada Emergency Wage Subsidy Changes
The government introduced changes to the Canadian Emergency Wage Subsidy (CEWS) effective July 5, 2020. Previously, many businesses that showed at least a 30% drop in revenue qualified for the 75% wage subsidy, up to a maximum weekly benefit of $847 per employee. Currently, the program is open to business owners with any drop in revenue but includes a new variable subsidy, which is determined by your drop in revenue for those who have seen a 0% to 49% drop. Thanks to the “safe harbour rule,” business owners with a 30%+ drop in revenue can remain in the previous CEWS design (still qualifying for the 75% wage subsidy) until August 30, when all businesses will be subject to the new design of the program. For businesses who have seen a 50%+ revenue drop, they will qualify for a wage subsidy of at least 50% in September, for those at 0% to 49%, their wage subsidy will be calculated against their drop in revenue. Those subsidy amounts are set to progressively drop as the year comes to a close. Of course, there are also top-up amounts and other things to consider, but changes to the wage subsidy may affect cash flow regardless.
Action: With the reduction in the wage subsidy going forward, now is a good time to assess your team and key roles relative to your projected revenue levels and adjust headcount if required. We expect many businesses to have another round of layoffs this fall which will affect consumption, housing, debt levels etc.
2. Debt & Rent Deferral
During the height of disruption in the pandemic, many business owners were able to negotiate debt deferral with lenders and rent deferral with landlords. These deferrals may have provided much-needed relief, but some business owners may also be seeing those deferrals come due in the fall (if they haven’t already), which can have a serious impact on cash flow.
Action: Continue discussions with your landlord and your bank and be able to provide cash flow forecasts to demonstrate the need for further deferrals if needed. We are seeing some lenders extend their COVID deferral program to the end of the year but only for very specific situations so communicating the need for a further deferral is the first step.
3. New Loans and Financing Agreements
As a response to business owners being adversely impacted by COVID-19, BDC provided access to a working capital loan of up to $2 million with flexible repayment terms. This is in conjunction with other programs designed to provide immediate cash flow relief for business owners, including the Canada Emergency Business Account, the Co-Lending Program, the EDC Business Credit Availability Program, and the Mid-Market Financing Program. Some of these programs offered a 6-month principal payment postponement. For those that utilized these financing options in April and May, payments will begin during the fall. This will impact cash flow, so business owners must look ahead and ensure they make their payments and what impact those payments will have on their business. Additionally, some of these programs close at the end of August or September. For business owners who are struggling and have yet to consider these options, they may provide needed relief.
Action: Need to be able to model in new debt, revenue/cost scenarios, the timing of cash flow and overall debt load to make informed decisions on how to manage debt structure into the future.
4. The Current Outlook in the US
While the Government of Canada has successfully been able to add stability for Canadians and Canadian businesses and put measures in place to hopefully avoid a future shutdown, the US is a much different case. Many business owners who dealt with clients, vendors, or had other business in the US have had their operations impacted by the lack of stability, closed borders, and much more severe effects of the pandemic south of the border, and that shows little signs of changing soon. Even if the borders reopen and some stability in the US returns, it could be tenuous stability at best. Business owners depending on the US getting back to normal may be in for a wait, so it’s important now to plan ahead and consider different scenarios to ensure the health of their business.
Action: Look at different supply chains and sources of materials/supplies/labour and the related costs to do so, as well as manage A/R collections from foreign suppliers. Is this the time to focus on the products and services that are less reliant on the US or other markets?
It’s no secret that the current global pandemic has had a big, and in some cases severe, impact on business owners across Canada. Some level of stability has returned, but as we’ve seen over the past four months, things can change rapidly (i.e. what effect will schools resuming in September, and possible further outbreaks, have?). Thankfully, we have enough information based on what we’ve just been through and what we know is coming in the immediate future to plan ahead and ensure business owners can manage their cash flow and increase the stability within their own business.
If you’re a business owner in need of cash flow planning and analysis or want to discuss more on how to plan for the changes we’ve described above, reach out at any time. If looking ahead (or even just at where your business is today) has you feeling overwhelmed, stressed, or unsure, we’re always available to talk. We can help to provide clarity on your situation and the confidence to manage it and work through any of these issues together.