COVID -19 has the world in a frenzy, the media is pushing fear tactics, and social media is full of people who aren’t taking this situation seriously enough. As a business owner, it’s important to understand what you’re at risk for, how you will protect your employees, and how you’ll stay afloat during this pandemic. While many are concerned about health, the restrictions being put in place are also causing financial stress as well. Cash flow will be crucial during this time so it’s important to have a cash management plan in place. Here are a few tips on how to manage cash flow during a crisis.
Review Your Cash Flow Projections
You need to determine how much cash you need and for how long. Your projections should answer this question for you. This information should also help you calculate your burn rate which tells you when you could potentially run out of funds. By getting clear on these numbers and tentative timelines now, you can plan for shortages and cut back where needed.
Check Your Reserves
As your organization may experience a slow down, it’s important to check on your reserves and what access to those funds look like. If you do not have reserves, it may be time to consider what non-essentials you can cut back on in order to create a cushion. You should also tap into your options for financing in the event you have to go that route. Some organizations that are unable to build reserves have a line of credit that they can tap into which is an option to consider also.
Map Out Your Bare Bones Budget
Now is the time to determine what absolutely must be paid in the event you experience a cash crunch. A bare bones budget consists of only the essentials and makes you aware of “your number.” This is a crucial step in managing cash. In the event you experience a cash crunch, you need to be able to switch to your bare bones budget and take care of the essentials and cut the non-essentials.
Too often organizations are relaxed when it comes to following up on money owed. If you’ve read my case study, then you’d know that we were able to recoup over $2M in receivables for one of our clients just by implementing a process of efficient invoicing and following up. You will see an increase in people trying to hold on to their funds so as early as possible you should get clear on what receivables you have open, follow up, and encourage payment. Also consider offering a discount for early payment if it makes sense for you.
“Beware of little expenses. A small leak will sink a great ship.” When things are going well, spending can get a little out of hand and we tend not to pay as close attention to what's going out. Review your YTD finances and identify expenses that are not essential and fall into the “nice to have” bucket. If you predict that you will need additional funds, cut these expenses and use those funds to add to your reserve or build cushion.
Back office operations are often last on the priority list but crucial during times of crisis. Please check on your human resource, finance, and business continuity policies so that you stay ready as things are changing daily. If you do not have cash flow projections and would like to build out one for your organization, please feel free to contact us.