Some (Hopefully) Helpful Information for our Fellow Small Businesses

To our fellow small business owners and operators,

Like most/all of you, we still have more questions than answers when it comes to making the numbers work right now. Our business has been completely upended, as has virtually everyone else’s. We’ve spent the last 10 days re-tooling Modern Times in dramatic ways based on the radically new conditions in which we find ourselves. Our principle goal is, of course, to maintain continuity of employment for 292 people, who need a paycheck and health care now more than ever.

We have figured a few things out, and it’s with that in mind that we’re penning this blog post—to share what we’re doing to keep the lights on, in the hopes that at least one of these ideas is something you can put to use to improve your own position, even a little bit:

First things first, the monthly P&L statement has become virtually useless to us. Instead, we’re looking at cash itself, on a daily basis, with the help of a Google Sheet with the following inputs:

Daily Cash Transactions Google Sheet Inputs

In essence, the inputs in these rows reflect cash in (what we’re collecting from our retail locations doing to-go sales, what checks cleared from our wholesalers, and a line for anything else) minus cash out (credit cards, payroll, AP, rent, etc) to give us a Running Total reflective of that 24-hour-period of net cash transactions. The columns then each represent a business day. We give ourselves enough columns to work in so we can also forecast future obligations specifically in the cash out section (i.e. knowing a specific like the next payroll run on the 31st or a landlord rent payment on the 3rd). If you need some help populating the first set of data here, review your bank statements for the last six months to make some educated guesses.

With this foundation, you can add your own formulas to represent key performance indicators (KPIs) such as the value of cash on hand as it relates to the average daily expenses you’re seeing in this “new normal” for your business—essentially, days of cash on hand if the revenue lines dried up completely.

None of this is in and of itself remarkable, but it’s worth mentioning because we found, immediately, the tools that we’d normally use as a company to measure financial performance were not helpful at a moment in time where daily performance (not monthly or quarterly) is determining our viability as a business.

In terms of actual changes to our business practices in an effort to preserve cash on hand, we’ve enacted the following measures on the cash out side of things, with perhaps another post dedicated to “cash in” practices if this seems generally helpful:

  1. Lender Communication. Knowing that our debt obligations, and the interest on that debt, represent our single largest group of transactions on a monthly basis, this is where we started. Banks, too, are reacting daily right now to the changes, with potentially new debt products being passed down to them to help stave off mass commercial bankruptcy, so it may take a day or two to connect. But once we did, they were able to move forward, with limited data, to instantly seek approval (successfully) for deferring principal and interest payments for at least the next 90 days to start. Without this, the financial calculus for us would have been vastly more difficult. Ongoing communication is an important consideration too—assumptions are made in the absence of information, so letting them know your collective wins and losses every other day or so can only help right now.
     
  2. Pause Most/All Credit Card and Automatic Activity. With the exception of a single card held by our Accounting Department, we paused all corporate credit cards so our accounting team is the only group of folks able to actually spend money on a daily basis. This makes it far easier for us to anticipate the “cash out” side of the business, versus having unnecessary recurring payments posting, for instance. This said, you can and should still utilize credit cards to get some cash float, just remember when that balance comes due (and add it to your daily cash forecast doc).

    You should also take a look at any recurring ACH’s set up through your banking systems to make sure those still make sense in light of your business changes. We’ve enacted a tool called Positive Pay through our bank to add another level of accepting or rejecting any automatic payments to doubly confirm all automatic payments going out the door.
     
  3. Consolidate Outgoing Cash Flow. This may not be relevant to all readers, but we’ve also changed roles around here so that all outgoing cash flow is now being managed through one person. While normally multiple people would be placing material orders and spending money, it’s ultimately much easier to manage the timing of payments if all spending is going through one person.
     
  4. Payment Plans for Major AP Balances. Stopping payments entirely without communication is a recipe for disaster. If anything, over-communication during these times is the key to keeping both parties comfortable with amending terms and/or payment amounts. For the credit card balance already built up during the last transaction period, and for other major balances accrued before March 10, the second conversations our Accounting team had (after our lenders) were with those vendors as an effort to strike payment plans for those balances.

    By offering prepay terms for new purchase orders for the materials and other business needs represented by those vendors, we were able to receive multi-month paydown plans for the current balances held by these vendors—one very quick way to mitigate cash going out the door faster than it needs to. So far this tactic has held true for material vendors, packaging vendors, utilities providers, insurance carriers, professional services, and landlords.
     
  5. Payroll. As an employee-owned company, we’ve made some unusual decisions here that are largely against the norm of reducing payroll to only those deemed “essential” in a crisis like this. As of today, we’ve maintained employment for the 292 people that started the month with us, though we have instituted a hiring freeze for the time being. We also reduced all salaried team members to the California minimum salaried level. This has allowed us to keep paychecks going out to all of our hospitality employees currently unable to work (at least as far as what work looked like just two weeks ago for them). California has come through with payroll tax deferment, which we are taking advantage of, and will hope to see something similar enacted on the federal side soon. All told, these changes shaved off about 40% of our average payroll run.

    It's worth noting that your digital payroll provider may not allow you to run a payroll without automatically including taxes. If that's the case, as it was with us, we've opted to write paper paychecks in the meantime.
     
  6. Benefits. We’ve seen our primary health benefits provider already offer 60 days of payment deferment, so we’re taking advantage of that and any other deferrals that come available to us through our benefits providers.
     
  7. Business taxes. You can contact your local tax office supervisor and ask for extensions on both your sales and excise tax payments. From what we’ve seen, most are open to 60-day extensions to start. The corporate tax deadline has also been extended to 7/15, so if you’ll owe for 2019, push off filing for as long as possible.
     
  8. Utilities. Many utility providers have pledged to keep the lights on and the water running for us during these extraordinary times, too. For you breweries out there, you know these represent some of your largest expenses to begin with, so make sure you’re not auto-paying a settlement on utilities that you don’t need to be right now. Keep that cash in hand.
     
  9. Rent. With a dozen landlords, we’ve seen the full spectrum when it comes to responding to this crisis. Some have deferred April rent as asked, others have been staunchly against any sort of reprieve. We are actively looking at the commercial lease eviction moratoriums that several cities have enacted to better understand what we can and cannot do city-by-city right now. This is another place where communication is going to go a long way though—remind your landlords that today’s deferment or relief will, with the highest degree of certainty, improve your chances moving forward of being around for the financial scope of your lease in its entirety.

Overall, preserving cash on hand is key to weathering this storm in the near-term. That said, you also don't want to stack liabilities to a point where continuing operations after this is over is not feasible. If you have the cash, make good on your accounts due when you can. Making payments when possible will also go a long way if you have to ask for flexibility again in the future. This is the tightrope we’ll all be walking in the coming weeks. While remaining in this mode for long isn't sustainable for us or anyone else, it's allowed us to avoid layoffs, which is our signature accomplishment so far. We hope others will be able to do the same.

Wishing everyone the best in this unprecedented and challenging time,

-The Modern Times Crew