How to Conserve Cash and Create Liquidity in Light of COVID-19

By Ronald F. DeSoiza, CPA, Partner and Eric Gelb, CPA, Director

In the short time the coronavirus has spanned the globe, cash has become the coveted asset of choice. Many businesses are closed and, for example, restaurants have switched to takeout or delivery only. Cash flow has become dear and left businesses scrambling for relief. Our recent Thought Leadership article on loan financing covers SBA Loans which you can find here and the Small Business Administration (SBA) Disaster Loans, which we discussed in a recent blog. In addition, follow these 15 action steps to preserve your cash and create liquidity for your organization:

  1. Review your business forecast and cash flow budget and make revisions as necessary. Create several downside cases to take into account any reduction the coronavirus has slowed sales volume and cash flow.

  2. If your business volume has slowed, eliminate extra shifts to reduce your labor costs.

  3. Prioritize your expenses and other obligations. Schedule payments for the goods and services your business needs to operate.

  4. Eliminate nonessential expenses or defer payment. Take inventory of raw materials, supplies and equipment. Work with your suppliers to implement “just in time” inventory delivery to reduce your inventory.

  5. Meet with your vendors and request purchase discounts or an installment payment plan. Consider consignment if practical where you pay for the items you purchase when you use them or when you sell them to your customers.

  6. Review open purchase orders. Defer or cancel nonessential ones. When possible, request a refund of any deposits and progress payments.

  7. If you rent your premises, meet with your landlord to discuss a temporary rent reduction or rent holiday.

  8. Consider monetizing unencumbered assets to raise funds. Examples include accounts receivable and equipment.

  9. Update your customer contracts if your industry allows and collect advance deposits and progress or milestone payments. Maintain close contact with your clients and defer work for nonpayment.

  10. Consider drawing down revolving lines of credit if you need working capital and are not in default. The interest expense you pay might be prudent in light of needing funds. Be certain to review your loan agreements with your advisors to make sure you are in compliance with all the terms and conditions.

  11. Ask your lenders to defer required principal repayments for three to six months. This is called a waiver or loan modification. Upon executing a new agreement, so long as you pay your interest expense on time, you should not be in default. Consult competent counsel.

  12. Determine the optimal time to file your 2019 income tax returns. If you have not filed your 2019 income tax returns and are entitled to a refund (including under the new rules of the CARES Act, expedite your filing. If you owe money, consider deferring your income tax payment until July 15, 2020. Collaborate with your tax advisors.

  13. Recalculate your 2020 forecast taxable income and therefore estimated tax payments. Defer estimated tax payments for the first three quarters to October 15, 2020.

  14. Review your insurance coverages to determine whether you are entitled to benefits in light of the impact of the coronavirus.

  15. Consult the experts. Meet with your advisors, credit providers and investors to manage your financial obligations and commitments.

Contact Us

PKF O’Connor Davies can help you prepare your company and the documents necessary to obtain loan financing. We can also help you restructure your loans and business. For more information, please visit our COVID-19 Resource Center or contact either of the following: 

Ronald F. DeSoiza, CPA, ABV
[email protected] | 914.421.5604

Eric Gelb, CPA
Financial Services
[email protected] | 914.341.7049