As the Covid Cash Runs Out, Entrepreneurs Confront a Hard, New Reality
If we have been living off of Covid cash—whether directly or as the result of government funding going to clients and customers—what is our plan going forward?
By Ami Kassar
Last week, I spoke with the owner of a daycare center who is starting to feel a cash pinch. Why? Many of the Covid childcare credits that her customers received have ended. As a result, her sales are slowing.
I also spoke with a marketing and communications agency for educational organizations (school districts, nonprofits, foundations). Its challenge is that post-Covid, now that the additional federal funding that educational organizations received has dried up, budgets have shrunk substantially, and profitability has become a challenge.
Most businesses received Covid support through Paycheck Protection Program loans, Economic Injury Disaster Loans, or Economic Recovery Tax Credits. Some used this money to buy jets, houses, and yachts, and I have no empathy when these businesses run out of cash. Many others used the money to help their businesses keep going and evolving, but now, when this safety blanket disappears, it can be scary.
I spoke with the owners of an e-commerce business last week that is running out of cash. Among other issues, their EIDL payments are due, and it needs to find the money to pay them. When I asked them how they used their $500,000 EIDL loan, they didn’t have a very good answer. It seems these owners did not squander their EIDL on anything criminal, but they got used to a new comfort zone and used the money to pay salaries and other expenses. They got used to having the extra cash, but it didn’t help them grow the business. Now that the money is gone, they are unsure what to do.
Based on the conversations I’m having, there are quite a few businesses that made that mistake, which is why I’m a little concerned about what impact the drying up of the Covid cash will have on the economy. Ultimately, it’s important to remember that while we can’t control everything that happens to our businesses, we owe it to ourselves to assess opportunities carefully—including when government cash drops into our laps unexpectedly.
In this spirit, I have some simple and specific advice: It’s time to buckle down and make sure we understand our business model. That means really understanding our numbers and what is happening in our business. Now that the government spigot is being turned off, what are our profit drivers? Are there opportunities to cut expenses? If we have been living off of Covid cash—whether directly or as the result of government funding going to clients and customers—what is our plan going forward?
Many business owners and entrepreneurs struggle to manage their finances. I would encourage you not to be shy about finding help from a professional, whether it’s a mentor or a fractional CFO. In this economy and environment, financial control is more critical than ever.
Ami Kassar is CEO of MultiFunding.
