Should I Apply for SBA
COVID-19 Loans?
This is the question that I am hearing most often right now from business owners.
The unsatisfying answer is…it depends.
Everybody’s case is different. Everybody’s business is different.
To make it through this uncertain time, you will need to create a financial roadmap.
A financial roadmap will not only give you a clear picture of your cash position for the next 8 to 12 weeks, it will also help you recognize potential money shortages so that you can take action today.
If you foresee a cash shortfall within the next 3 months, then there is a high likelihood you need to apply for COVID-19 related grants and loans.
Create separate financial roadmaps for your business and personal life.
Let’s start with your business.
Step 1: Create a Weekly Cash Forecast
First, create a spreadsheet where you can clearly lay out your financials for the next few weeks. The plan should extend for at least the next 8 to 12 weeks.
§ Designate each column as its own “week.”
§ Designate each row as an expense type (e.g. travel, marketing or software subscriptions).
§ Add rows for other things you have to pay (e.g. a business credit card or repay business loan).
§ Sole proprietor or LLC disregarded entities, include a row for your pay (Owners Pay).
Plot out each week what you expect to spend money on.
Designate a row for each spending type
Step 2: Categorize Your Spending
Once you have mapped out your spending, you can figure out which expenses are fixed and you must pay, which expenses you can negotiate or delay payment of and which expenses are completely unnecessary — you should get rid of those at this time.
Categorize necessary and unnecessary expenses
Step 3: Reasonably Predict Income
Next, plot out how much cash you expect to come in each week either from clients, unemployment or other places. Communicate with your clients so you can reasonably predict how much and when that cash will come in.
Completing this exercise you will not only give you a clear picture of your cash position for the coming weeks, it will also enable you to recognize potential money shortages so that you can take action today, such as applying for government funding.
Now that you have set up cash in and cash out by week, you can forecast what weeks you will run out of cash.
You’re now prepared to make decisions on what you will do to make up that shortfall.
You can either fund it with a grant, line of credit or business loan.
Calculate your total revenue
Step 4: Decide if COVID-19 Related Funding is Right for You
Once you have done this exercise for your business, you can do the same thing for your personal lift. If you are a sole proprietor or LLC disregarded entity then the Owner’s Pay (referred to above) will be considered income in your personal life.
My hope is that by completing this exercise, you will gain a sense of control over your financial situation and be able to make decisions based on numbers instead of just gut feelings.
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