In normal times, economists will tell you to manage your long-term profitability. You need to generate a profit, including depreciation, that makes it worth the capital you have invested in the business as well as the risk and personal time you put in.
In a crisis, however, cash is king. It’s no good being profitable in the long-run if you go bust tomorrow.
A few readers have found recent Yukonomist columns about managing through the crisis useful, and have asked for more suggestions.
One key topic is squeezing cash out of your business.
The old cliché says that if you want to get out of a hole, you should stop digging. The business equivalent is to freeze cash outflows wherever you can. The biggest outflows are obvious, and you are probably already talking to your landlord and bank. But it can also be important to go through every line item, looking for recurring items.
Do your millennial staff wonder about the strange machine covered with dust and old bills in the corner of the office? Maybe it’s time to kill the fax line (unless old-fashioned customers are still faxing you orders, of course). Standing orders, weekly and monthly services, association memberships and similar items all need a beady eye.
If equipment leases or insurance renewals give you the chance to choose deferred payment plans, now might be the time to pull the trigger.
Then it’s time to look at your balance sheet to see where you can squeeze cash out of it.
Assets like accounts receivable need attention. If you’re not already sorting your receivables by age and pro-actively encouraging your customers to pay, you should — especially government agencies and large corporations. Now is not the time for your bill to fall unseen behind the coffee maker in your client’s accounts payable department.
Inventory is another critical source of cash. You have probably already put the brakes on new orders, but how do you squeeze cash out of what you already have on hand?
This may require creativity for things that are not on any government list of essential COVID-era goods.
If you can figure out how to turn your expensive inventory into cash with some creative marketing and sales, your income statement will thank you. You might have to have a COVID sale, but if you’re creative you may be able to avoid discounting.
You might have to start delivering, in a contactless way, but you can charge for this too. With business volume ramped down and gas cheap, this might be an emergency measure you need to take to make it easy for your customers.
Service businesses are a bit different. Yoga instructors don’t have a line item for “inventory” on their balance sheets. However, if you think about it, they do have inventory. It’s just invisible and highly perishable. On Tuesday morning, they might have an inventory of eight classes for the day. At the end of the day, any that didn’t happen have effectively vaporized. This means anything you can do to do business with your clients online is critical. If they’re stuck at home, they may want to do a Zoom video class, with a little bit of online socializing added on top.
The liabilities side of the balance sheet can also offer some creative possibilities. Take “customer pre-payments,” for example. How can you get customers to pay in advance? Perhaps you can somehow bundle your product in subscriptions, whether that is a year’s worth of yoga lessons or the pizza delivery of the week.
However, the harsh truth is that for most businesses these measures may help a bit, but won’t be enough to deal with the scale of COVID-19’s impact.
You should also be signing up for as many of the government support programs as possible. The feds have announced some huge business programs. Some may take weeks to be set up, but you should be ready to apply the day their websites open if you are eligible.
The Yukon government has also announced some programs, including one to help businesses hurt by the cancellation of major events such as the Arctic Winter Games. The Yukon government may have spent its previous cash reserve and gone into debt during the recent economic boom, but it still is in a relatively strong financial position. This isn’t the case with all provinces and territories. There were troubling rumours in capital markets last week that investors turned up their noses at Newfoundland bonds. But the Yukon territorial government still has borrowing power.
Furthermore, there is a territorial election required by next year, and the recent budget ramped up capital spending to over $350 million. Many of these projects may not end up being doable if COVID-19 affects construction timelines during our building season, which is just around the corner.
As a result, the Yukon government may have more firepower for business support programs if it chooses. Ontario, for example, recently announced lower electricity bills as well as deferred property tax and Workers Compensation bills. British Columbia’s $5-billion economic package would work out to around $40 million scaled to the Yukon population.
However, as helpful as current and future government programs may be, the help may not arrive in your bank account right away. That’s why, in the meantime, aggressively squeezing your business model for cash is critical.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.