Business consultant Tom Stimson wrapped up his 20-week crash course on navigating the business world since the coronavirus outbreak started to sweep across the U.S. in mid-March with a look at the financial metrics business owners should focus on during what’s he’s called a “do-over.”
“The triage you did early on probably made a big difference for you,” Stimson said in the opening remarks of the final episode of his webinar series, “The Show WILL Go On.” “In June, we started talking about systemic problems with the industry and some of the treatments for those.
“Now, we’re in recovery mode and we’re going to be there for a while. How long you’re there depends a lot on you,” he said.
Stimson advised business leaders to create a clear cashflow forecast, manage their overhead expenses diligently and think about gross profit contributions and managed risk in an effort to extend what he called “the business runway.”
“Ignore your (profit-and-loss statement),” said Stimson. “We’re in a cashflow, checkbook business right now. Treat each business decision based on how it affects the end of your cashflow runway. We need to know when and where cash is coming in and going out.
“You’ll likely be in that cashflow crunch for the next two years. You’re living gig to gig, sort of like how they talk about living paycheck to paycheck,” he said.
Runway to Recovery
Business owners are allowed to include one “what if…?” on their cashflow plans, but it needs to largely be built on certainty, said Stimson. They should be reducing as much overhead as possible “so you can last longer,” he said.
That doesn’t mean business owners should ever actually reach the end of the proverbial runway though.
“Your goal is to either extend the runway or change the plan and bail out,” said Stimson. “Breaking even doesn’t extend your runway. It just keeps you from losing ground.”
If you’re trying to keep a close eye on your business’ long-term financial viability (which you should be), Stimson advises focusing on margin by service, the difference between estimated and actual costs, how much net cash you have for a given period and your ratio of overhead to cost.
Those metrics, he said, will give you a nice snapshot on if your plan is sustainable or needs to be tweaked—or completely scrapped.