cash flow

Small- to medium-sized businesses were struck by the health crisis. Government-imposed lockdowns and restrictions in different parts of the world caused many beloved establishments like bars, salons, and restaurants had to bid goodbye, either temporarily or permanently, due to cash flow strains.

However, the reality is that It’s not just businesses that are struggling. Consumers are also financially strapped. This reality makes clients more inclined to save instead of spend on products or services as they did pre-COVID.

This situation calls for careful planning and preparation from entrepreneurs fighting to stay in the game. In the face of a global pandemic, strategies must be employed to reduce expenses, pay for vital operational costs, and realign product or service offerings to engage existing and future clients.

Here’s how you can manage your cash flow efficiently during these times of economic uncertainty.

Build a forecast and get an overview of your overall liquidity

See the big picture. Start by building a 6-month forecast to have a clear view of your current cash flow. Make it a cross-team effort by involving other business units beyond finance and accounting; Gather insights from teams like sales and business development so you can have a holistic picture of your actual financial situation.

Know just how much liquidity you have at present. Before you begin, consider various scenarios and draw up plans for each situation. Take a deep dive and answer questions like:

  • How long will our business survive in the current socio-economic climate with our present liquidity?
  • How far can we stretch our liquid assets if we do plans A, B, and C?

From here, you can optimize your overall business financial strategy. An in-depth, informed forecast helps you discover the gaps in your finances to make up for lost income and minimize expenses. This also allows you to make financial resiliency plans and spot and grab strategic investments to benefit you during the crisis.

Communicate with your key contacts

Reassess the risks involved in handling your business from different vantage points. Be proactive. Reach out to your stakeholders, clients, and collaborators. Communicate with suppliers, consultants, and all other vital players who help keep the ball rolling. Let them know that you wish to find better ways of working with them during this challenging situation.

Reassure them that you are willing to make adjustments or do things for them beyond contractual obligations in light of the current crisis we all face. Demonstrating empathy and consideration by hearing their side strengthens ties with your allies.

When the need arises, building good relationships with your key contacts makes it easier for you to look for alternative solutions that can buy you the time and confidence needed to stay afloat.

Be creative with customer engagement

Since in-person engagement is discouraged, setting up a digital distribution channel online will help bridge the gap. Promoting your products on multiple social media platforms where your target demographic is should be an option.

Try rethinking your business model to fit the times. For example, if you own a restaurant, you can start selling your food online while offering pick-up or delivery options. Retail stores with physical shops that barely make sales these days will benefit from shifting to ecommerce.

Creativity should also extend to payment collection. Encourage your clients to stay on board by allowing milestone payments. Offer incentives and early pay discounts whenever possible to attract business.

Seek government assistance or consider taking out loans

Some of your clients may be delayed in payments because of their financial situation. Take advantage of the Coronavirus Aid, Relief, and Economic Security or CARES Act.

The government offers economic assistance for businesses through the Paycheck Protection Program, which can help you with employee retention issues due to cash flow problems. This incentive helps cover payroll and other expenses. Working with an existing lender can be to your benefit during the application process.

Another option to boost your cash flow is considering business loans suited to your needs if things are tight in the money department. Just make sure that your forecasting includes this factor, so you do not go overboard.

Plan for the crisis’ conclusion

Be forward-thinking. This pandemic will end sometime in the future, so make sure you are prepared to ramp up operations when business operations go back to normal. Restarting will be more challenging if you have done a lot of cost-cutting and employee layoffs, so go on easy on your current austerity measures.

While things are slow, you can upgrade your facilities or upskill your workforce. Employees who stay on will find training programs beneficial for their professional growth. This also gives your company the edge to compete in a COVID-free world.

Be Realistic and Keep Moving Forward

Setbacks are inevitable at this time, but bouncing back should always be top of mind. While being optimistic always makes things brighter, grounding yourself to the realities surrounding the crisis promotes a healthier mindset when dealing with indisputable facts and figures.

Proper planning, following best business practices, being adaptable, and finding growth opportunities are key factors to building an enterprise that will persist and succeed beyond the recession.

Ralph Wintle is the Head of Product for Earlypay, an invoice finance platform. Having been in the industry for many years now, he writes content that aims to help small businesses grow.

Cash flow stock photo by ANDREI ASKIRKA/Shutterstock