PPP Round 2: The 5 Best Uses of Funds for Retailers
By Marc Weiss - CEO, Management One
Recently one of our clients challenged me on whether to pursue the second draw on PPP. Here are my thoughts. In April we were in uncharted waters facing shutdowns and operating in crisis. 10 months later we are all moving through different degrees of recovery. Some have prospered better than others due to niche and location.
However, there continues to be uncertainty. No one can predict how human behavior will respond even as the pandemic recedes. This uncertainty may not be seen or even felt as the same clear and present danger that we felt in April, but it is nonetheless real.
The second draw is an opportunity for businesses to free up cash flow to invest in the acceleration that will continue throughout 2021 and on. Adaptation is key to confronting the new reality and discovering new ways to connect or deliver goods and services is the challenge for 2021. Over two months of salaries and associated compensation expenses will be covered by the new PPP loan. For many retailers that reflects 20% or more of total expenses. Those expense dollars are now available to invest somewhere else in the business. The question to ask is where will I get my largest ROI?
Here is my Top Five investment list for retailers:
1. Invest in connecting, delivering, and marketing.
a. Social media presence
b. Messaging and content
c. E-commerce and social selling
2. Invest in people.
a. Will that new hire build my business?
b. Do I have all the right people in the right positions?
3. Invest by testing new products and categories.
a. Update assortments including going narrow and deep where there is growth potential.
b. Add categories where there is demand.
c. Stop investing in categories and products that are not working. (View our vendor performance scorecard.)
4. Invest in cleaning up and negotiating debt.
a. Review your balance sheet debt and determine if PPP cash can settle debt to help you open or re-open needed relationships.
b. Pay down interest-bearing debt, as long as it doesn’t leave you short of cash.
c. Do a 12-week cash flow projection, regardless. (View our 12-week cash flow tool.)
5. Invest in merchandise planning so you optimize your inventory and improve cash flow.
The second PPP draw is a gift to bridge your business, accompanied by Congress providing guidance on the 2020 PPP, and essentially not treating it as income. That is a double bonus to cash as retailers will not be facing tax consequences for their first draw and the second draw provides fresh capital.
Thinking through your best opportunity for ROI is an important task and should be undertaken with your closest advisors. I listed a few options to consider; other considerations may be more critical based on your individual circumstances.
The road back is not a sprint. There are problems that are urgent and critical to survival, and there are also problems and opportunities that require patience. The journey to adapt is part of every retailer’s life forever. The second draw is a partial means to support your efforts.
Onwards and Upwards,
Marc