Jay Silver, Managing Director of the apparel business at CBIZ, hosted a Member-exclusive webinar on practical tools for short-term financial planning to help brands better understand re-allocating resources, strategic planning for PPP loan forgiveness and keeping gross margin in check. Overall, preservation of cash should be everyone’s number one priority at this time. Below are key takeaways from the conversation;
Quick Reactions
When you understand your weekly cash flow, it enables you to react timely to the changing environment. Meet weekly with your team from your CFO to heads of department in sales and operations so you get an accurate reflection of what’s happening. Prepare a weekly cash flow for the upcoming 13 weeks.
Inventory – Current Orders
First consider season availability. What do you have on hand that retailers did not take? As the new season approaches, when can you put inventory on sale online? Inventory is not going to be your friend, so you have to consider putting in-season inventory on sale prematurely. Inventory is the greatest threat to cash flow. The worst thing you can do is end up with too much inventory. When the pandemic hit, people had goods-on-water and goods-in-work and the concern now is, how are brands going to get rid of it? Retailers will be inundated with spring and summer goods and everyone will try and offload them to off-price retailers. Brands that would normally host a sample sale in May or June will have to consider hosting these online to offload inventory.
Inventory – New Orders
It will be hard to cut down because brands won’t know when deliveries are going to be delayed to and what kind of orders will be placed. CBIZ encourages brands to take in as little goods as possible. You’ll have to work with your factories to cancel or postpone production because if you are sitting on too many goods that you’ve paid for and you can’t sell them, it will be detrimental to your business after this 6-8 week period. For next season, CBIZ recommends cutting down on orders and airing the goods in, or producing domestically for quick turns. Remember: It’s better for you to sell out than have too much.
Strategize with Piece Goods
Be more intelligent with how you choose your piece goods. If you don’t use them this season, can you use them another season? From a practical standpoint, this could help tremendously.
Prioritize Critical Vendors
You will have vendors that you cannot pay, or if you pay them, it can be at the detriment of your business. Slow down payment to vendors wherever you can and prioritize which vendors you will need next season. Try not to make any pre-payments. If vendors won’t give you your goods without payment, try and negotiate with them. Can you give them partial payment for them to ship? It is critical that you postpone your cash flow for as long as you can.
Understanding Your Weekly Cash Flow
For people who have received PPP loans, it is intended to help you preserve cash and it’s going to alleviate the issue of actually paying employees. The concern now is, what is going to happen after you receive the loan? If the stores don’t open, you will have to go out and procure more inventory. Who will you pay and who will you defer? If you don’t have the cash, how will you procure new inventory? You may be developing your next season right now, but how will you be developing your samples? You have the PPP loans to pay your employees, but what are you going to do when that runs out (only 8 weeks after the date you were funded)?
What will the Retailer’s Appetite be?
Be cautious with larger retailers and specialty stores. You don’t want to have an issue with retailers who are not credit checked with your factor. If they are not credit checked, get prepaid. When thinking about who will be credit-worthy after all of this, it is a difficult question to answer because even larger retailers will have a hard time. Speak directly with your factor and do not ship to anyone who is not credit checked.
Take Advantage of this Time
PPP Loans have brought back employees and what do you do when they don’t have much work to do? Take advantage of the time they have to start new initiatives or do things you have always wanted to do. From an accounting perspective, you can have them map out a new costing system. Experiment with DTC which has helped pick up business for brands while wholesale is down. Determine what is weak in your business and implement changes. Who do we need, what are their functions, and how do we make business more efficient?
Prepare for when the loan money runs out
There is a lot of concern around the months of July and August because at that point, there will be no more loan money, but you will have to invest in inventory and bring back staff . How will you fund that? Make sure to start planning well in advance.
PPP Loan Forgiveness
Guidance is changing every single day about the loans regarding eligibility. Only full-time employees or FTEs are included in your calculation. For anyone who has received a loan, your forgiveness period starts on the day you were funded. It’s not based on the payroll you paid on the day you were funded, it’s on the number of employees on the day you were funded. For example, if you received funding on May 3 and your payroll runs from May 1 – 15, it’s not going to include your whole payroll, it’s only going to include the number of people from May 3 – 15. The way we are calculating PPP is by the number of employees. You have to take an average of the number of employees over that eight-week period. That means the average number of employees you have working, starting the day you were funded, over that subsequent eight weeks. Even if it runs between payroll period, it’s still an eight-week period. Then you are going to compare that number to the average number of employees prior to COVID-19, before you were funded. That formula is going to calculate the percentage of the loan that will be forgiven. You can also include non-payroll expenses like rent and utilities.
