As a business owner, you know how important cash flow is to your organization. It’s about much more than having money in the bank, cash flow lets you make smart decisions to distribute your resources better, incentivize employees and continue to grow. In this article, we’ll go over 8 ways that can help you maintain your cash flow during a crisis.
- Know your cash flow inside out.
It is crucial to know your cash flow during a crisis because you need to know what you have on hand at all times.
If you don’t already, now is the time to start paying more attention to your cash flow. You want to know exactly how much money is coming in and going out of your business at any given point in time. So that means you need to be tracking your expenses and income daily. Try these tips:
- Set up a system for monitoring costs and income every day, or automate it if possible.
- Review expenses often for anomalies or areas where you can cut costs or renegotiate contracts with suppliers/service providers. (this is known as cost optimization)
- Calculate what matters to your business.
If you’re running a business, it’s important to be clear about what your goals are, what kind of profit you expect to make, and where the money is going to come from. You need to work out your cash flow needs and understand what your cost of living is. If you have dependents and people who rely on your income, this could mean making a list of all the bills that need paying each month, how much rent or mortgage payments you have coming out of your account as well as any other living expenses.
You also need to identify which expenses are “essential” and which are not so essential. In normal times, we may not think too much about our day-to-day spending habits but during crises, we need to be more careful with our money. Identify where most of the money goes – do you spend a lot on eating out with friends? Do you buy things online? Could some things be done cheaper or made at home instead?
- Look at short-term funding options.
So you’ve got your head in the books and have a good understanding of your company’s financial situation. Now it’s time to explore your options for paying the bills and keeping the lights on. Crowdfunding is one way to go, but there are also plenty of other ways to get short-term funding that can help with unexpected expenses or future growth. Short-term funding comes in many flavors—from an equipment purchase agreement (EPA) that helps you acquire equipment without a down payment, or an accounts receivable financing program (AR financing) where you can use outstanding invoices as collateral for a loan, to government programs like the Paycheck Protection Program (PPP). There are even cash advances against future credit card sales, which enable you to access capital during slower months without having to borrow from banks or family members.
The key is finding out which one is right for your business and its unique needs at this time. After all, every company requires different types of funding depending on its size and stage; regardless of whether it’s just starting or has been operating for decades—and no matter what industry it’s in.
- Rethink the cost of cash.
Speaking of money, the COVID-19 pandemic has left many businesses short on cash. If that describes your situation, now is the time to rethink how you do business. First and foremost, it’s essential to accept that cash is a liability, not an asset. You’re not saving money by paying with hard currency; in fact, you’re probably losing it. Why is this?
Study after study shows that when we use credit or debit cards to pay for things, we tend to spend more than we would have if we’d exchanged physical greenbacks. This phenomenon occurs because there’s no immediate penalty for overspending—no feeling the pain of parting with cash—and because it’s easier to lose track of your expenses when they don’t come in the form of paper bills and coins.
On a related note, while paying with credit cards can certainly add up over time if you don’t pay off your balance each month, carrying a balance with interest charged as opposed to spending all your available cash can sometimes be less damaging than spending all your available cash at once. That’s because if you run out of money completely, you won’t have anything at all going forward until you earn more or find some type of financial assistance
- Consider credit and invoice financing.
- Consider credit and invoice financing. One of the benefits of invoice financing is that it is a no-fuss way to raise cash. It gives you access to funds quickly and may help you improve your cash flow at a difficult time. In addition, it can work with your existing credit facilities to ensure you have the resources for your business during a crisis. This quick-hit funding option can be especially beneficial for small businesses because it does not require collateral.
- Look into grants and funding programs offered by government agencies or other organizations. If you’re struggling with cash flow, there may be opportunities for financial assistance out there that can help ease the burden on your business during tough times.
- Offer customers some breathing space and alternative payment methods.
You have a few options here. The first one is to offer customers some breathing space and alternative payment methods. You can provide your customers with the option to pay in installments or give them a little more time before they have to pay you. Another method is to provide an incentive for payment upfront. This can be done by providing a discount for early payment, for example, 30 days instead of 45 days. However, it’s important that you do not forget about asking for payment!
Another thing that you can do is talk to your bank! Let them know about your situation and see if they can offer any support in terms of postponing or restructuring loans, offering temporary overdrafts, or perhaps even additional financing?
If you are facing cashflow issues during this time, let your customers know why there might be some delays in terms of payments due from their side as well as on yours – be transparent with your customers and let them know what difficulties you are going through at the moment. By showing them where the challenges lie, they will understand the situation better and help you get through it by being patient and accommodating. They will appreciate this if they are struggling too right now but don’t feel comfortable speaking up about it – everyone wins!
- Think long-term, find new ways to generate income, and grow your business.
One of the best things you can do to ensure you survive a financial crisis is to make sure your business is on solid financial ground. That means understanding your cash flow, and knowing how much money you have coming in and out of your business. You should also take a critical look at all of your expenses, prioritizing and cutting unnecessary expenses. If you need help managing your finances, talk to one of our financial advisers at Mbugua & Associates Financial Consultants.
You should also look for ways to grow your business by finding new ways to generate income and new markets for your products and services. Perform some market research so that you understand who uses your products or who might be interested in using them, but don’t stop there. Talk to potential customers directly, find out where they hang out online or in person, and find out what they like about competing products and services.
- Cash flow is important for small business success, but it is especially important during a crisis.
Cash flow is important for small business success, but it is especially important during a crisis. Cash flow is the movement of money in and out of a business. A small business with healthy cash flow can support itself, while one with poor cash flow can go out of business in short order. In normal times it is important to watch and manage your cash flow so that you have enough money to meet your obligations (such as paying employees and suppliers,) keep the lights on, and grow your business. However, during a crisis like COVID-19 cash flow becomes even more critical because the ability to quickly access funds can mean the difference between making payroll and closing your doors permanently.
Fortunately, there are ways to mitigate a negative impact on cash flow. The first step is simply being aware of what drives cash flow in and out of your small business: income from sales (in), paying employees (out), or purchasing inventory (out). During normal times businesses usually have some consistency in these areas – such as predictable slow periods in sales or seasonal changes in certain expenses, such as heating costs for office space. The current crisis has turned these patterns upside down for many businesses – such as restaurants forced to close their doors completely after having experienced record sales over Valentine’s Day weekend – so understanding how that affects your balance sheet is critical if you want to survive this downturn