Cash flow through COVID
The saying “cash is king” has never been as relevant as during the COVID-19 pandemic and recovery.
With so much uncertainty, preserving cash flow is more important than ever while also balancing the need to retain your skilled workforce, increase safety and social distancing measures, all while trying to keep your business afloat. At the time of writing this article, Ontario was in the process of re-opening but much uncertainty remained.
COVID funding and benefits
As the pandemic hit Canada, the federal and provincial governments released details of benefits and funding to help individuals and businesses through the crisis. As many of these programs were released in March 2020, they have just been highlighted here but more details can be found on the CRA website (Canada.ca) or by talking to your accountant. They include:
- wage subsidies provided to help companies keep staff on payroll (recently extended to December 2020),
- the Canada Emergency Business Account loan up to $40,000 with 25 percent forgiven if certain criteria are met,
- extension of the work share program,
- emergency commercial rental assistance,
- deferrals allowing payments for corporate tax, personal tax, HST and WSIB to be deferred from their initial due dates amid the Ontario shutdowns, and
- increase of the EHT exemption to $1,000,000 for the year.
As applications for many of these programs extend into the fall or later, there is still time to consider if any are right for your business. If your business is eligible for a program, you should carefully consider if accessing the benefits now to boost cash flow could help you through what could be months before we return to a new sense of normal.
There has been talk of a second wave of this pandemic and history tells us that wave is often far worse than the first, so keeping cash flow strong before a second wave hits could make or break your business’ future.
Additional costs
As we try to assess what the new “normal” will look like, there are additional costs that businesses have and will continue to face. These costs need to be front of mind as you consider your cash flow position throughout the pandemic and beyond:
- Increased safety costs to ensure your staff and customers are not put at unnecessary risk (e.g., plexiglass shields, spreading out workers and customers for social distancing, an increased cleaning schedule, additional PPE).
- Potential delays in construction projects which will at least delay cash flows but could also trigger cost overruns.
- Potential increases in absenteeism and sick days due to illness and mental health issues stemming from the pandemic.
- Increased interest costs if you needed to take on additional financing to maintain operations.
Cash flow considerations
When putting all the above items into your cash flow projections, you should be sure to consider the following:
- Will you have enough cash to make the necessary payments that you deferred? Not having the cash available will increase the interest and penalties your business is charged.
- Do you have sufficient cash to repay any additional loans obtained based on the loan terms?
- Have you accessed all the available funding and financing needed to help your business through the pandemic and the rebuilding of the economy thereafter? Institutions like the BDC have announced additional financing packages to provide further cash flow above the government funding.
- Have you included multiple scenarios in your cash flow projections? Budgeting and projections are estimates in the best of times but are extremely difficult in the current landscape. By including a best case, expected and worst-case scenario (at least), you will be able to be better prepared should the worst happen.
As Ontario continues the slow process of re-opening, I am hopeful that we will have returned to a new sense of normal soon; but even so, many businesses will not have survived or will be struggling. To safeguard your business as much as possible, you must focus on your cash flows and forecasting. Without any forecasting, it will be difficult to make the tough decisions while also making decisions that are best for your business, employees and customers.
Written by Kimberly Aitken, CPA, CA, Co-Leader of RLB LLP’s Construction Team. Contact her at 519-822-9933 or visit rlb.ca.