Top Resources Today · Cash Flow March 18th, 2020

6 Step Plan to Taking Control of Your Cash Flow

I’m Blaine Bertsch, CEO of Dryrun, a cash-flow management tool used by small and mid-sized businesses. We live and breathe cash flow every day and we’re going to help businesses through the emerging COVID-19 crisis as much as we can.

  • There’s a lot of uncertainty and risk in the days and months ahead:
  • What will a reduction in revenue mean?
  • What could affect supply chain?
  • What will costs ongoing look like?
  • What should you be doing to protect both your staff and your business?
  • What other unforeseen costs might impact us locally, nationally or globally?

I lived through the 2008 recession (which was the driving force behind developing Dryrun) and learned a few fundamental facts:

  • The answers you need are in the numbers
  • Knowledge is critical to make the right moves
  • In stressful times like this, it’s doubly critical to make informed decisions

Below, I’ve laid out a short, 6-step plan to get you on track with your cash flow.

Building a Basic Cash Flow Forecast

What’s Your Current Cash Flow Status? The first step is to know where your cash flow sits today and to forecast where you expect it to be on a weekly basis for the next three months.

To build out your first forecast, focus on some near-term timelines. Begin with a three week forecast, then continue to build on it out to twelve weeks. Remember, this is a forecast. It won’t be perfect and the further into the future you go, the less accurate it may be, but the forecast will provide a general map of where you’re heading and pinpoint some potential crisis points.

This forecast will need to be updated weekly at an absolute minimum, as you work your way through the crisis.

Your starting point can be an existing forecast you have on hand, but if you are starting from scratch, there are ways to get moving. First, you can download a basic template to get you going. If you would like to try out a tool for forecasting, we’ve launched a program to provide three months of Dryrun for free as part of our COVID-19: Business Relief Program. You can sign up here. We’ll also provide a free download of my book, “Pandemic Cash Flow” as well as a growing list of resources.

The first number you should enter is your current cash position. How much cash do you have on-hand right now? How much credit? Don’t add in money you expectto have come in at this point. Just use the most concrete number you have to work with at present.

Then add in your recurring expenses, such as payroll, rent, software licenses, etc. – into each week. You can eyeball it as necessary.

Next, enter your bills outstanding by their due date.

Finally, enter in the invoices outstanding, entered on their due date. If you don’t invoice your customers, enter the amount of revenue you expect to receive each week into your bank account.

Adjust Your Base Model to Reflect Your Reality

Once you’ve built out your forecast that includes your recurring expense budget, bills and invoices, you will likely need to make adjustments to bring a much higher level of accuracy to your forecast.

Often, invoices you have sent out won’t be paid on time. During a crisis like this, the likelihood of late payments increases dramatically. Move those invoices to the dates where you realistically expect the payment to arrive. This is the perfect time to get on the phone with your customers and follow-up on those payments.

If you don’t invoice your customers, you may still want to adjust your expected inflows of cash based on potentially slowed sales. Do your best to predict when cash will come in and how much. Err on the side of caution and don’t expect it to be penny perfect. Use your best educated guess.

Evaluate the Critical Factors Likely to Cause You Pain

What factors will have the greatest impact on your near term cash flow? Are you owed money? By whom and how likely is it to come in? When can you realistically expect it?

Do you have big bills that are due? Can you ask for some relief or a delay in payment?

Where are your heaviest expenses? What expenses can you cut that will have the least effect on your business and staff?

Identifying the factors that present the greatest challenges and dangers to your cash flow is key to taking the next steps in addressing them.

Make a Worst-Case Scenario Forecast

Duplicate your forecast so that you can make adjustments and create a new scenario. In this forecast, consider what factors could lead to a worst case scenario and model it out. What happens if payments come in later than you expect? What if some of the payments don’t come in at all?

Based on this forecast, you can gain a better understanding of where you may sit financially and develop an emergency plan to help deal with the possibility.

Discuss with Partners and Advisors

Now that you have your forecasts built and in a form that you can explain, bring others into the conversation. Critical perspectives include your management team, accountant and business advisor. You can duplicate your scenarios and make adjustments based on their input.

These conversations will not only help you refine your forecasts, they will likely bring up both potential risks you may have missed as well as opportunities to address the issues.

Develop an Action Plan

Understanding your current situation and your potential future is the first step in addressing the issues, but nothing will happen without taking action.

  • Create a ‘to-do list’ with clearly defined responsibilities for everyone involved.
  • Make sure that the actions are tied to deadlines. Best intentions will do nothing for you.
  • Stay on top of the activities and ensure they are getting done effectively and on time.
  • Be ready to re-act and adapt as the situation changes.
  • Stay on top of your forecasts and models with weekly updates!

I found personally that knowing where I stood during 2008 recession led us to fundamental changes that not only saved our business but helped us grow as we emerged from the worst of it.

I’ve heard the same from other business owners who found innovative answers to their predicament in their forecasts. In fact, some businesses will actually grow through a time of crisis based on the type of product or service they offer. If your business may be one poised for growth, be prepared to deal with potentially rapid growth and sudden demand that can drain your resources.

Here at Dryrun, we’ve just rolled out a COVID-19 relief plan for business. Sign up today and receive 3 months of our modelling software free, a free download of my book, “Pandemic Cash Flow” and access to a growing library of resources.

Reach out with questions at Dryrun.com or connect with me on Linkedin.

Contributor

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