Managing cash flow is always a priority, but the current backdrop has elevated it to the forefront. Cash runway is of the utmost concern and should be calculated under different scenarios. While prognosticators speculate on the shape of the upturn, follow the mantra of hoping for the best but planning for the worst. Run multiple scenarios assuming: (a) revenue shortfall that you experienced in the March and April timeframe stays constant through the year, (b) the revenue shortfall persists into the first half of 2021, and (c) revenue declines accelerate through the end of the year. Depending on the nature of your business, you may need to run additional scenarios that factor in seasonality, customer concentration, etc.
The economy may bounce back in the second half of the year, and if so, you can adjust accordingly. However, if you do not proactively adjust early to a more dire situation, your business will not be in a position to survive.
Tightly managing payables and receivables can help any business augment working capital and serve as a bridge extending your runway additional month(s). Accounts receivable financing is readily available through banks or invoice factoring companies such as BlueVine and Fundbox. If you have a good banking relationship, reach out to your account representative to explore credit options, including extending the loan amortization time period or establishing/increasing asset based revolvers.
The federal government has acted aggressively to help SMBs with the CARES Act. The CARES Act components include: the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan Program (EIDL) and the Employee Retention Credit. (Note non-banks such as PayPal and Intuit have recently been approved to administer PPP loans.) The PPP allows companies to borrow up to $10 million, computed as 2.5x average monthly payroll, while EIDL allows up to $2 million in loans and a grant of $10k under its original terms.
If you are a venture backed company, talk to your investors about raising additional funds at an attractive price, perhaps at the same valuation as the last round or through a convertible note or simple agreement for future equity (SAFE) to expedite the process. Y Combinator has templates for SAFE and convertible notes on its website. Venture debt is another avenue to explore, especially if you are a venture backed company. Venture debt is typically subordinate to senior debt from a bank, so it will carry higher interest rates (i.e. low double-digit annual interest rate) and financial covenants, but if it means the difference between running out of cash before the upturn manifests, then it may be a cost worth taking on.