I was quite surprised to see Accu-Air and BBS enter bankruptcy proceedings within 4 months of the global COVID-19 pandemic economic slowdown. As I then began working with a couple more clients over the summer, I learned that day-to-day cash flow management can often be quite tight in many automotive aftermarket companies.
If you work with predominantly products, you have inventory risk, upfront investment on equipment and real estate that you’re paying off, and credit risk from financing these large purchases. If you work with services, you might run a low-margin, high volume business, or a higher margin, low volume business. You also likely have more employees at risk. Both are at risk in the case of a slowdown, as volume of demand will decrease and customers’ price sensitivity will increase.
The economic slowdown has continued, and while the aftermarket is anticipating resurging growth of demand in the coming months, I felt it would be useful to address solutions to the currently ongoing cash flow challenges. SEMA agrees that this is a valuable topic – tune in next week!
The cash flow strategies I recommend for mitigating slow sales in this pandemic are:
1. Take advantage of grants, avoid loans
2. Extend/utilize payment terms, but do not go delinquent
3. Choose low-cost options for physical assets
4. Protect your people, assign new tasks
Take advantage of grants, avoid loans
Take the free money. If you are eligible for a grant or a forgivable loan, apply for it. Right now, the US government is working to put more stimulus measures in place to ensure your business can keep running, even with slowed demand. Ensure you’re using the funds received for eligible expenses, such as payroll, to guarantee the government will forgive your loan.
Avoid loans during slow times. Unless you have a clear plan for how you will allocate the funds and forecasted cash flow to repay the balance, it’s prudent to avoid the risk and overextension and focus more on delaying cash outflow and minimizing expenses. Without that clear plan, loans give you the illusion that you are more secure than you really are. Especially during slow times, it’s important not to overextend your investment without a clear path to positive return on that investment.
Driven Performance Advisors has advised their clients not to use support loans to invest in a dyno or new property, but rather to focus on delivering to existing customers, use the slow time to implement streamlined processes, and invest unutilized grant funds and budget in new product R&D.
Extend and utilize payment terms, but do not go delinquent
If your suppliers are open to negotiation, consider discussing an extension to your payment terms. Keep in mind that your suppliers may also be strained for cash and unwilling to negotiate, but know that not all businesses are struggling during this time. If your supplier is a materials distributor, for example, they are likely not cash-strapped during this time.
Do not use the pandemic economic conditions as an excuse to go delinquent on your outstanding payables. While tempting and reasonable, strive to satisfy all payment terms. Along with keeping your suppliers happy, running your company with this level of discipline will build resiliency and strong financial practices that will help you reach higher levels of success in the long run.
Choose low-cost options for physical assets
Real estate, inventory, office space, company cars, customer car storage, tools and equipment, and maintenance are physical assets that will likely cause ongoing, consistent expenses despite the business slowdown. Physical asset expenses are hard to avoid. That said, if you usually pay top-dollar for premier levels of physical assets and maintenance, this category of expenses could be a good opportunity to scale back in slow sales periods.
Negotiate with your landlord for reduced or delayed rent payments. See if you can borrow or rent parking space from your neighbors or rent out your lot. Focus on fixing the little things on your company cars instead of buying new ones or ordering a big parts shipment. Take the time to service your lifts, spray booths, and heavy equipment. Cancel your cleaners.
Driven Performance Advisors was able to move several long-term projects through a custom shop during the lockdown period by allocating time, keeping staff at work, if they were willing, and explaining the return on investment to the workshop manager.
Protect your people, assign new tasks
As business begins to pick back up, you will regret letting people go. If you’ve protected your team’s employment, your people will be able to resume full-time responsibilities in the jobs you hired them to do. Show loyalty to your team during hard times, and you will see that loyalty paid back. Providing security in the form of a stable job and income (even a slight pay cut would probably be understandable) is far preferred to a layoff of any kind. Your employees will see that while their friends are worried about losing their job or looking for a new job, you’re telling them not to worry. Don’t forget to communicate your plans and the measures you’re taking to ensure their jobs are safe.
If some of your people have limited responsibilities due to limited demand (your engine builder is without a steady stream of new pistons, for example), it’s up to you to find new tasks that can leverage their strengths and continue pushing the company forward. What projects have you always wanted to take on? What can you develop in-house with minimal cash investment? Is there any work you’ve been putting off that you can delegate? Read our article on hiring for growth to see how you can think about versatile skills of your staff.
Driven Performance Advisors is here to help you build the confidence in your business during tough times. We can implement systems, processes, and strategies to build resilience and agility that will ensure financial and operational strength during slow periods. Get in touch to learn more: firstname.lastname@example.org.