Whether your business is new, or if you’ve been around for a while, crisis strikes without ringing your doorbell! Natural calamities, market crashes, or rare pandemics like the coronavirus, may sneak in nastily and shake up your business. Or sometimes its’ loss of a large client, key personnel, or illness.
It is in these times, that you need to find the solution to one aspect of your business to hold everything together– your cash flow. We’re here to help you with that!
The Power of Cash Flow
Cash flow is the lifeline of your business. Money coming in and going out of your business should be seen with a magnifying glass during times of a crisis.
It is the state of your cash flow that determines if your business can stand strong in emergencies. Hence you need to take action to stay in business, no matter what comes your way, like a boss! In a regular world it is said that the average small business has enough cash flow to manage 14 to 30 days before running out. According to one study, 30% of businesses fail because they run out of money. A pandemic like Coronovirus puts these already cash crunches businesses in crisis mode, which some may not bounce back from.
Cash flow problems are solved by formulating plans according to the circumstances to make sure your business has cash readily available. You’ll need to pump up your cash flow, manage financial risk, capture sources of funding & working capital.
When you’ve plugged in the new plans to solve your cash flow problems, you’ll also need to monitor and analyze them. DAILY. Most businesses hate budgeting and monitoring them, but being pro-active about every dollar is what is going to save you in these circumstances.
Here are some plans that you can adopt to restructure and manage your cash flow.
Strategies to solve Cash Flow problems
Unexpected circumstances throw all financial and commercial plans out of the window. Hence, this becomes the perfect time for businesses to bring in strategies to swiftly handle the shortage of cash flow.
Speed up the incoming
Receivables — you’ll need to put this on the fast track. You could offer and accept pre-orders for your products. Likewise, you could make arrangements for an up-front deposit or partial payment for services or products.
Some clients may be due and past due payments for business with you. In such cases, you could ask for an urgent full or partial payment. Your business plan may be designed to receive all payments on a particular day of the month.
During a crisis, it is ideal to send out invoices to clients immediately after the service or sale. You can offer convenience to clients by helping them pay you with more options like e-transfers, credit card payments, or mobile apps.
Of course all communications with clients needs to be done tactifully as they too may be suffering cash concerns. Having a plan, in writing, will help both sides negotiate during these times.
Slow down the outgoing cash flow
During times of crisis, utility companies and some loyal vendors may be willing to defer or negotiate your payments to them. They may even provide you with easier payment plans. This delayed or reduced amount in payments will help you hold on to cash flowing out of your business in hard times.
To help with this, break down your expenses into fixed, discretionary and option. Fixed are monthly expenses that or may or may not have any flexibility. Discretionary you have the ability to avoid/cancel if you deem you really don’t need it. Optional are usually the “extras” we do when we have a bit more cash flow to spend. These are definitely off the table right now.
Borrowing helps sometimes
When you are really tight on cash and a little influx could help your business hold on, you could take a business loan or a credit card advance. However, you’ll have to critically scrutinize interest rates and how a borrowed loan could affect your finances in the long term.
Don’t get in the extras!
If your business needs additional inventory or purchase of more assets, you might want to rethink here for a bit. In times of crisis, sales slow down. Re-plan and cut down extra purchases that may end up tightening precious cash.
Shelter in the government’s umbrella
During times of crisis like natural disasters or pandemics like the COVID-19, the government offers relief financial packages to support affected businesses. You can read more about them here
Keep yourself updated with these assistance programs and match them with your cash flow requirements. Always discuss these financial assistance opportunities with your accountant to adeptly fit your cash flow solutions.
Cash Flow solutions of today — protect your business forever
No one foresaw coronovirus coming, but businesses owners are advised to have some contingencies in plan should a crisis ever occur – loss of key personnel or client, illness, or even a economic downturn. Each business requires a customized plan to solve their cash flow problems. We at Dharna CPA expertise in providing solutions for all of your cash flow management needs, in or outside a crisis. Book a call here