Just a few short weeks ago, businesses that received funding during the first tranche of the PPP loan program were considered fortunate. But now, many of those businesses have reached the end of their loan money, and business still isn’t back to normal. Now what should they do?

Just a few short weeks ago, businesses that received funding during the first tranche of the PPP loan program were considered fortunate. But now, many of those businesses have reached the end of their loan money, and business still isn’t back to normal.

There are a number of reasons why the loan money might not have been enough:

• Full or partial shutdowns continue in some parts of the country, preventing businesses from rebounding. Even though experts warned us COVID-19 would be with us for some time, shutdowns and their economic impact are lasting longer than many expected.
• The states that have reopened have seen a dramatic increase in the number of COVID-19 infections. Although some customers are happy to return to their pre-shutdown habits regardless of increasing case numbers, others are making the decision to stay at home a little while longer. This is slowing down the rebound many clients were counting on when their states allowed businesses to reopen.
• Many business owners who received funding during the initial rollout of the PPP loan program made spending decisions based on the guidance that all PPP funds would need to be used in an 8-week period in order to receive loan forgiveness. These guidelines have since changed to give loan recipients 24 weeks to use the funds, but not until after many business owners had spent most of their loan money.

Whatever the reason, no doubt you have some clients who are concerned about what they will do now that their loan money is nearly gone. Following are four things you can do to help them survive – and thrive – now.

#1. Do an Expense Analysis

You likely did an expense analysis with your clients when shutdowns first became inevitable, but that was before the PPP and EIDL programs were announced. The unfortunate downside to the small business relief programs was a loss of urgency for business owners to make potentially painful decisions about their business expenses. Many business owners assumed the loans would be enough to carry them through what they thought would be a short-term decline in revenues, and so they chose not to make significant changes to their business spending.

If your clients never made changes to their spending – or if they’ve allowed their business expenses to rebound since they’ve received their loan money – now is the time to do another expense analysis with them. Schedule an appointment to review their P&L and statement of cash flows line-by-line to identify potential areas where they can optimize their use of cash.

I recommend doing this even for clients who seem to be doing well financially, as well as those who made spending changes early on. Chances are, even these clients are feeling the sting of uncertainty. Helping them optimize their cash further – or validating the positive impact of the optimizations they’ve already made – will help ease their minds and raise your value in their eyes.

#2. Determine an Income Target

In my work, I advocate using income targeting to determine how much revenue a business needs to generate in order for the business owner to reach their personal income goals. You can also use income targeting to help your clients determine how much revenue their business needs to generate in order to remain viable during times of economic upheaval.

After completing an expense analysis, reverse engineer what the client’s total revenue will need to be in order to support their expenses. Don’t forget to include the owner’s pay (draws/distributions and payroll,) taxes, and contributions to a business savings account (more on this in a minute) when you calculate the required revenue.

Once you have targeted the client’s income, help them brainstorm what they can do to hit this target. Is a price increase warranted? Can they easily add a product or service to help them hit their revenue goal? Would now be a good time to invest in some advertising to increase sales volume?

You might find you have to revisit their expense analysis and make further optimizations to their use of cash, but try to use additional cuts as a last resort. Instead, get creative on ways to increase revenue in order to hit the income target.

#3. Build a Multi-Layer Contingency Plan

Income targeting will show your client what they need to do to keep their business viable now, but what if things improve – or devolve – significantly?

Work with your client to build a multi-layer contingency plan for their business. How will their business look if they exceed their income target? What expenditures can they add back, and when? And how will their business look if they don’t hit their income targets? What additional changes will they need to make, and at what point will they need to make them?

If your client is up to it, this is also a good time to help them identify the point at which their business will no longer be viable. Even in the best of times, many business owners hold onto their failing companies much longer than is financially healthy, ruining their personal finances, relationships, and even their health in the process. Helping your clients determine the point of no return before it arrives could prevent their complete financial ruin and give them peace of mind that they will know when it’s time to shut down for good.

#4. Build a Strong Cash Position

I’m always in favor of a strong cash position, and I believe it’s even more important now.

Help your clients determine what their critical operating expenses are. Don’t stop with their business expenses; move past any shyness around discussing their personal finances and help them determine what their “survival” compensation from the business looks like. Then, form a plan with them to set aside a buffer of at least 3 months’ worth of cash (6 months is better) to cover these expenses.

This is easier to accomplish for a business that is doing well, but with some strategic decision-making even businesses experiencing a downturn can build a reserve of cash.

One area to consider is debt repayment. I suggest making only minimum payments on debt until the emergency cash reserve has been funded. This goes against conventional guidance, but keep in mind a bank can call a credit line at any time. If you don’t have a cash reserve, you’re counting on being able to use credit in an emergency situation, and that credit might not be available.

Also, carefully evaluate any investments under consideration for the business. If these investments won’t generate revenue very quickly, you might be better off putting that money toward the cash reserve until it is fully funded.

These are short-term solutions with the sole purpose of helping your clients build their emergency cash reserve. Once the cash reserve has been built, encourage your clients to resume their debt repayment and investment strategies.

Your clients need your leadership now more than ever in order to help their businesses survive. Business owners who have used all of their PPP and/or EIDL funds are worried, even if they aren’t admitting it outright. You can’t remove all the uncertainty for them, but taking them through these four steps will help them regain a modicum of control over their business’s finances.

Your practice or firm will also benefit. When you provide this level of guidance, your clients stop seeing you as an expense and start seeing you as a partner in their success and survival. This provides you with stability while helping your clients keep their businesses viable – a win/win situation for everyone.