The past few months have shown us all what a crisis looks like with the coronavirus pandemic. In some places, the pandemic has settled down for the time being, but many businesses are still operating in some form of crisis mode. Even in the best of times, businesses need to focus on improving cash flow. In times of crisis, that challenge to manage cash flow can be nearly devastating.
It’s even tougher for new or growing businesses to be in crisis mode because they’re frequently reinvesting, and are unlikely to have the padding of a lot of cash sitting on the sidelines to help them make it through.
With cash flow, the years of major growth can prove to be the most challenging. If you’re simultaneously dealing with a crisis outside of your business like a pandemic, it can be crippling.
The following are important cash flow management tips during times of crisis that can also work for general periods of growth in a business.
When you’re dealing with cash flow issues, it can be more challenging to pay vendors and suppliers on time, but when those relationships fall through the cracks, it can have long-term detrimental effects on your business.
When you automate AP, even if you are struggling with cash flow, it provides you with visibility so you can be proactive with potential situations before they actually happen.
You can pinpoint where you might be able to negotiate for more favorable terms when you have more oversight.
Just having an understanding of what’s happening in your business as far as cash going in versus out is going to give you a greater sense of empowerment, even when you’re dealing with a crisis.
You also want to maintain relationships with vendors, so AP automation can help you reach out to them before something even becomes a problem. If you manage cash flow well, you are in a better position to come to a mutually acceptable resolution.
If you’re already in a cash crunch, you might pay your bills slower. The longer you can wait between bills, the more cash-on-hand you’ll have. This might create strife with your vendors, however, so that’s something you’ll have to consider and weigh the pros and cons of. Yes, you want good vendor and supplier relationships, but paying too quickly can be problematic for your cash flow.
You’re also going to want to make sure you’re monitoring accounts receivable closely.
With the coronavirus pandemic, accounts receivable has likely been a problem because it’s led to a downturn that might make it more difficult for your customers to pay on time. You’ll need to see as with AP where those issues are happening and come up with solutions to deal with them.
There are a variety of ways you can implement solutions.
For example, encourage your customers to pay you faster by offering discounts when they do so.
It’s tough even to know what your cash flow situation is, crisis, or not if you’re not organized.
If you’re in a crisis or think you could be in the near future, sit down and identify what’s going in and what’s going out.
Categorize your expenses based on the most critical to business continuity and then prioritize, looking at what can be deferred.
You’ll also want to look at possible revenue impacts based on prioritizing customers by looking at their payment and credit history.
Look at Your Variable Costs
One fast way to reduce your outflow of cash is to look at your variable costs and find ways to reduce them.
For larger companies, with COVID-19, there was the requirement that you start imposing travel bans and putting restrictions on non-essential meetings, which were ways to reduce variable costs.
In any crisis, you might also think about restricting variable expenses like entertainment and putting hiring freezes in place.
It’s also possible in times of crisis and in particular when labor is one of your biggest expenses to rein in your contractor labor costs and focus more on your permanent workers.
Take Advantage of Financing Options
It’s very likely that if you’re like most businesses right now, you might have to tap into credit to get through the cash flow crisis you’re experiencing.
You can draw down existing lines of credit, so you have cash on hand. Think about the potential worst case scenarios you may be up against in the future in doing so, and try to prepare for those.
To help you manage cash flow, you might also apply for a line of credit or business loan if you don’t have one.
You may end up needing to use your assets to secure a line of credit, or if you operate a small business, there’s the potential you’ll have to sign a personal guarantee.
The CARES Act that was passed in the spring did offer financial resources to businesses, although some of those are closed for the time being.
The Paycheck Protection Program was one government assistance option that let employers keep paying their employees and better manage cash flow, but the application deadline has passed.
You might think about an SBA loan, and one particularly geared toward disaster or crisis situations.
There are crisis situations that might only apply to your business, but what we’re in right now is a crisis that’s affecting every individual and every business. Regardless of the scenario, communication is imperative if you have cash flow issues or you’re forecasting that you could.
You want to make sure that you’re working with your creditors to defer payments when you can, and that you’re talking to vendors to update payment terms.
To manage cash flow, contact your customers to collect balances as soon as possible, and speak with your landlord about the possibility of deferring rent payments.
Finally, communicate with your employees too. You want them to know that you’re empathetic toward the uncertainty they may be feeling and the potential for difficult decisions to be made.