Cash Flow · Top Resources Today June 18th, 2020

Five Steps to Manage Your Cash Flow in a Crisis

It is a common refrain that “desperate times call for desperate measures”; but what exactly is a desperate measure for your business, in times like thisIn many cases, sales have seized up completely while expenses continue only mildly abated. Desperation might make panic tempting, but simply throwing one’s hands in the air is unlikely to put you in a position to solve the problem. With that in mind, here are some actionable tips and measures to managing your business’s cash flow todaythat will put you in a stronger position when making critical entrepreneurial decisions.  

1. Eliminate as Many Cash Outflows as Possible 

Take stock of every expense line and identify each cash payment obligation that you have in the coming months, ranking them from biggest to smallest, and include fixed and variable. Then start opening lines of communication starting with the biggest. For many businesses, two of the biggest obligations will be rent payable to a landlord and loans payable to a bank. If you haven’t already, you should engage both now and have a frank discussion with them about your business’s situation. What kind of impact have you seen on your sales? Share this with them and be prepared to back it up. Make this an ongoing conversation and push to renegotiate terms. 

Payroll is another major cost for many businesses and is certainly an aspect that contains a lot of emotion. If you’re faced with reducing your payroll, first check out the various wage supports that the federal government is offering. Ihour reductions or layoffs are required, do your best to keep up communication with your employees. Be open and transparent about the situation and help them find some of the supports for individuals that have been created. 

You may also be finding opportunities to defer payments of various types. This should be done, but only with a clear plan for how that payment will again affect cash flow when it is due. Make sure that the terms of the deferral, and when and how payment is expected, are perfectly clear. 

Examine every expense your business has and eliminate wherever possible. Every dollar you can keep in your possession is going to be helpful. 

2. Preserve as Many Cash Inflows as Possible 

Examine your product and/or services and all the ways customers currently access them: these are your sales channels. Are any of these channels seeing precipitous drops, or even closed off completely? If you have more than one channel, shift all your attention to that which is still mostly open and generating some sales. If you only have one channel, begin a rapid development to open new ones. Had you balked at creating an online store? Now might be the time to set one up. Are you able to deliver your product to your customers’ homes? These are straightforward examples, but you will be very well served by getting creative here. 

calculator - managing cash flow in a crisis

This is also a time to reconnect with your company mission. Ask yourself – what is the reason you are in business at all? And when you’ve identified (or re-identified) what that mission is that drives your business, it’s time to think entrepreneurially about how you can deliver on that mission in a different, new way. 

Crucially, you must remain in communication with your customers. The needs of your customers are very likely changing as this crisis plays out, and you need to be attentive to that so that you can continue providing value to them. Be prepared to consider new forms and expressions of your business to meet changing demand. 

Finally, a business can explore liquidating assets as a one-time increase to cash inflows. Look at all your business assets and consider what their fair value would be. This could be inventory, fixtures, equipment scheduled for replacement soon..Keep in mind that you will need to do this with a plan for how any necessary assets liquidated will be reacquired in the future. 

 

3. Get a definite picture of the situation, in dollars and cents.

Here is where you get to put on your accounting hat. Rather than just assuming that your cash coming in is much less than cash that needs to go out, figure out precisely how much cash you have coming in and precisely how much needs to go out. This will allow you to challenge any assumptions you’re currently making about the magnitude of the crisis for your business. Some owners may believe that they’re down but not out, and this analysis could reveal an immediate emergency. The opposite may also be true, you might be assuming that your business can’t survive but in fact you have some time to adjust. 

Count all committed cash outflows and all reliable cash inflows for the coming months. Compare them side by side to numerically visualize the situation your cash is in. Seeing the numbers on paper will help you frame the scale of the situation, make the work seem more manageable, and help you set your sights on realistic outcomes. 

4. Seek ways to “close the gap” 

woman sorting through business financial papers

Armed with your numbers, you can now explore some external support to help you through the crisis. If you know and have evidence, that you will fall $10,000 short in meeting your obligations, you can ask your bank for help financing this specific amount. Loans are being guaranteed by the federal government up to $40,000 to give banks much more flexibility in lending working capital (certain criteria applies). 

Perhaps there are other finance sources you can pursue as well, like bringing on new partners through equity or looking for further support through your personal networks. Presenting these numbers will give any supporters greater confidence in you and your strategy to see this crisis through. 

5. Learn. 

Keep a cool, calculating head on your shoulders, and you can use this time to help your business emerge in a better position than ever to serve the needs of your customers. Take this as an opportunity to reevaluate all the aspects of your business, and challenge all assumptions you’ve been operating under, particularly as they relate to cash. 

You may want to consider keeping a larger reserve of cash or liquid assets on hand, to help weather unexpected shocks to your business operations in the future. You may also seek access to flexible credit. If you immediately apply for services like a line of credit when times are good, it will act as a very helpful buffer when times are bad. Bring a heightened awareness and attention to your working capital. How much inventory do you typically keep? What’s your average time to collect receivables? How much time do you have available to meet payables? Try to maximize your working capital in your business to keep more cash available at any given moment. 

While desperation may feel like the new order, your individual actions can and should come from a place of knowledge, rationality and heart. The measures listed here will hopefully let you take this approach to your cash flow, so that you can apply it further throughout your operations!

About the Author: Mark Shields

Mark Shields is a Business Strategist at Business Link. Mark has had a career of exploration. He’s studied history and accounting (not specifically the history of accounting, but he’s picked up a bit). He has a passion for organizing to build communities, from social entrepreneurship to charity. He has worked previously as the Program Director for CJSW Community Radio in Calgary and sits on the board of the Major Minor Music Project as treasurer. Mark has also dabbled in entrepreneurship with his yoga instruction business, Minima Yoga. Prior to joining Business Link, he helped to design, launch and operate the emergeHUB economic development project in east Calgary.

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