• Kevin McDonnell

Small Business Steps to Survival - Restructuring Your Debt and Rent

Updated: May 14


Some basic steps to follow:


  1. Create a realistic forecast of your business taking into account extra costs from social distancing and lower revenue. Forecast 2020 and 2021 by month.

  2. Maintain a 13 week rolling cash forecast

  3. Look at ways to reduce expenses with an action plan.

  4. Determine what capital (one time) improvements might be necessary to reconfigure your business environment?

  5. Determine what type of rent and/or debt relief you need to make through the next 18 months.

  6. Consider bringing on a partner to either invest or provide interim debt financing

  7. Present a proposal to your lender and/or landlord to modify payments in writing.

  8. You may have to stop making payments to get their attention and cooperation.

  9. Execute your Plan


The key action is creating a realistic forecast. The more your business relies on customer contact, the more you should reduce your revenue outlook at least in the next 18 months. You must also consider a permanent change to your business model post COVID-19. For instance, if you own a dry cleaner you might assume a permanent loss of 20% or more of your business because more people will be working from home permanently. In terms of one-time investments, do you need to change the physical structure of say your restaurant, beauty salon or car wash. Maybe a beauty salon will need self-contained pods. A car wash many have to clean the car completely before wash including a sanitization process so that all that needs to be done post wash is to dry the outside. This would require a complete reconfiguration. Restaurants should consider a permanent take out area with proper staging.


If you do not have experience at creating a forecast model, hire a professional or consult your CPA. This will also add credibility as you talk to the bank and lenders. An intermediary consultant can also bring some objectively to the process on both sides.


Don’t be shy in what you ask for. Make sure your requested debt and/or rent modifications so that they give you plenty of wiggle room. You don’t want to have ask for another modification in six months from now. The landlord or bank will push you to maximize your payments, but try to hold your ground. Remember they don’t want to lose a tenant or foreclose on a loan any more than you want to close up shop. Your proposal should be formal and in writing with supporting forecasts. This will require your bank and/or landlord to take you seriously (don't just make a phone call or email).


The sooner you come up with a long term plan the better. It will give more of a sense of control over the situation versus just trying to survive.


The author Kevin McDonnell is an Adjunct Professor of Entrepreneurial Finance at Brandman University which is part of the Chapman University system. Decision Dimensions is offering forecasting and restructuring consulting to small businesses. Contact us at info@decision-dimensions.com

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