Cash Management in a Pandemic

The phrase “Turnover is vanity, profit is sanity but cash is king” was coined for a reason. Few things are more important to any business than cash flow, as with a healthy cash flow, you can pay your debts on time, sustain your operations and expand your business. Without it, you’re only a few missteps away from financial ruin.

COVID has presented huge cashflow problems for operations of all sizes as sales have dried up whilst many of their costs (like rent and utilities) haven’t . For many businesses who were already struggling to balance the books pre-pandemic, the enforced lockdown in March last year signalled the death knell – especially those in the retail, travel, leisure and tourism sectors.

Even with the rollout of a vaccination programme, 2021 doesn’t look much better than 2020, and its proving really hard to judge when there might be some kind of return to ’normality’. The number of companies going into liquidation or administration continues to rise and as Government aid programmes progressively start to wind down, unemployment is projected to reach levels we had all thought had been confined to history. So what can SME’s, that provide 60% of all private sector jobs, do to help themselves navigate the choppy waters of a new economic reality shaped by the pandemic ?

  1. Cash Flow Forecasting
    First and foremost, it is vital to have visibilty of your cash flows and to use the data to project forward expectations of how your bank balance might evolve. Putting together a simple cash flow model using data downloaded from your bank doesn’t have to be rocket science and if needs be, ask your accountant to help. Whilst the output may make for sobering reading, it can also help to galvanise businesses into action and look for solutions to problems, whether that is through taking short term measures or setting long term aspirational goals. Ultimately, you can’t fix a problem if you don’t know what the problem is in the first place.

  2. Monitor and measure your cash flows
    Putting together a cash flow will help understand where you stand currently and where you might be based on a set of assumptions. However. for a cash flow forecas to be truly valuable, you will need to measure your actual performance against what you planned and make sure that things are turning out as you expected. Where they are not, think about what you can do differently to change things to turn things around before its too late.

  3. Cost Management
    It sounds a bit obvious but when times are hard, you have to look at your costs and make economies where necessary. Review every expense line in detail and ask yourself whether that particular cost cannot be avoided or postponed. Its surpising just how much cost within a business is simply the result of inertia – direct debits you’ve set up and never cancelled, or expenses you’ve carried on with even though it wasn’t clear you needed to. Perhaps you can switch some of your staff from full time to part time, move your purchases to cheaper suppliers or negotiate better terms. Where you have upcoming payments, delaying by even a few days or weeks can make all the difference and is well worth considering.

  4. Renegotiate with your suppliers, landlords and lenders
    Contact suppliers early to try and renegotiate debts. They too understand the problems of the pandemic and ultimately, it is in their interest too to see your business function and prosper – no one benefits from a bad debt. Having that conversation is important and all good suppliers will try and help where they can

  5. Review all debts owed to you
    Late payments from clients cause all sorts of headaches for SME’s. Pre pandemic, 78% of businesses were being forced to wait over a month beyond agreed payment terms before money owed was settled. Get good at chasing debts but at the same time, try not to forget that your customers are probably suffering the same issues as you and are looking to you as much as you are looking to your suppliers for help.
    Liaise with your bank or financier to quickly solve cashflow issues relating to unpaid debts and if late payments affect your ability to pay suppliers, be as upfront and transparent as possible so that you can renegotiate terms. Going forward, it is worth checking the credit ratings of clients and potential clients and striking good relationships with those that have a record of paying on time.

  6. Clear out your inventory
    Stock is there to be sold so take a critical look at your inventories and consider what steps you migh take to sell it off and convert it into cash. Discount sales and planned promotions can help to clear stock that has been lying around for a while. You should also ensure that for now at least, you are only investing in fast moving lines that will sell quickly as there is no point in buying stock that won’t sell for six months.

  7. Search far and wide for additional funding
    Extend your search beyond just loans and grants that have been made available to Covid affected businesses. Investigate regional or industry specific business funding too

  8. Read, research and reflect
    Review the strengths, weaknesses, opportunities and threats of your business and the sector in which you operate – particularly in a post-COVID world. Change is inevitable, inescapable even. Use this as a time to determine a plan where you can tweak and diversify your offering, as well as add value for customers in a climate where people will naturally be cautious of spending.

“Ultimately, during this ongoing period of uncertainty, don’t lose sight of the fact that more money needs to be flowing into the business than flowing out in order to keep the lights on.”

Measure and evaluate cashflow at all times so that you understand your current financial position and can make informed decisions and ‘affordable risks’ – not just to keep the business afloat, but to grow it even within economically hostile environments.

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