Cash flow trouble is the cause of many small business closings, especially during the pandemic. Here are seven tips for managing your company’s money during a downturn.
Cash is king, especially for a small business. A healthy cash reserve can provide a small business with the security to survive economically perilous times.
The pandemic has been game-changing for the US economy. Although financial stimulus measures have made some funding available for small businesses, and for many, it has not been enough to remain viable. Those who are hanging on have had to make dramatic changes to the way they conduct their business.
Cash flow management is a critical factor for small businesses to get right under the best of circumstances, and crucial for survival now.
Cash flow challenges
In normal times, any small business owner has to contend with cash flow issues centered around four key factors:
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Managing receivables: How to get the money that is owed to you.
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Managing payments: How to pay your expenses and cover your existing financial commitments.
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Managing employees: How to make payroll.
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Securing capital: How to cover the deficits in your budget.
Here are seven suggestions for applying financial crisis management skills to address these cash flow challenges that are being intensified by the pandemic.
1. Monitor, review, and analyze
Being on top of your finances is always essential for a business owner, but your level of diligence should increase during a crisis. Having up-to-date numbers is critical, as is making sure you are tracking the key performance indicators (KPI) that are tied to your company’s success. Those numbers will tell you which receivables to pursue, which expenses can be cut, if you are spending too much on payroll, and if you need to apply for a loan.
One tool that could help right now with decision making is cash-flow forecasting. You can plug your most recent data into a model to predict your future financial position.
2. Press pause
During an economic downturn, it is smart to put the brakes on any nonessential capital investments. Unless a piece of equipment or materials is required to get you to a more comfortable place financially, carefully consider whether an outlay of cash right now makes sense.
3. Prioritize expenses and commitments
Go through your financial statements, line by line, and isolate areas of possible excess – the “low-hanging fruit” you can cut easily. Chances are you have some. For example, marketing expenditures that have not proven their value could be eliminated, as could sponsorships.
Next, make the more difficult expense-related decisions, keeping in mind that your cash needs to go where it can do the most good.
Be sure to set aside enough money to cover your tax obligations and loans.
4. Get creative
You may be able to free up some cash by reimagining some of your operations. Look for inefficiencies in your business processes. For example, is it taking you too long to collect payments? Are you leveraging all your available technology? Would another source of materials cost less?
There may also be creative ways to pivot your business to bring in more revenue or stimulate growth. You could try new pricing models or use low-budget marketing to attract customers in new channels.
5. Make staffing decisions very carefully
You may have to make the most difficult decision as a small business owner: furloughing or laying off staff. Check all your options first. Consider reducing upper management’s salaries temporarily or offering to move some employees to part-time. If you must let unneeded workers go, be sure to help them obtain all eligible unemployment benefits.
6. Negotiate
Now is the time to talk to everyone you owe money to with the hope of gaining more favorable temporary payment terms. This list includes vendors, lending institutions, landlords, and equipment leasing agents.
7. Take advantage of helpful resources
The federal government has made money available to small business owners through the CARES Act and the SBA Economic Injury Disaster Loan program (EIDL). As the pandemic continues, more funds may be allocated at a more competitive rate than private loans. Other types of COVID-19 relief for small business owners are available through state and municipal governments, local chambers of commerce, and various nonprofit organizations and charitable foundations.
At Franco Blueprint, we help business owners manage their cash flow in the best and worst of times. We provide guidance to assess your business’s financial needs and recommend practical next steps. It is our business to assist small business owners and help them secure their livelihoods during times of crisis and beyond.