As I type this, we're sunk in the COVID-19 pandemic as well as the economic turmoil that comes with it. Many people are at home, not purchasing or working, and being laid off from their job. Business owners must ensure that our businesses do not just endure this recession but also find ways to prosper. At the moment, is having money easily accessible.
For small companies, the management of cash flow during the event of a crisis is crucial. It could be the difference between sustaining your company or being in a position to fall in the slack.
To control your business, you must focus on the operational aspects that bring cash into your pocket. Recognizing a steady decrease in revenue and the requirement to reduce costs is evident. However, the first step is to concentrate on stabilizing and sustaining the cash flow from your operations.
As I type this, we are buried in the COVID-19 epidemic and the economic turmoil that comes with it. The sick people stay at home, not purchasing and not working, or being laid off from their job. Business owners must ensure that our companies can survive and discover ways to prosper. At this moment is having money easily accessible.
For small companies managing cash flow in the event of a crisis is crucial. It could mean the difference between sustaining your company or being in a position to fall in the slack.
It is important to concentrate on the operational aspects that bring cash into your pocket to be in control. Recognizing a steady drop in revenue and the requirement to reduce costs is evident. However, the first step today is to focus on stabilizing and sustaining your cash flow for operating.
Basics of cash flow
Before we go into crisis mode, go over the basics. If you're not sure of your cash flow from it is written on your hand, I recommend that you study Cash Flow 101, the distinction between profits and cash, and how to forecast your cash flows and know the cash flow statement.
They are excellent resources to refer to during times of need and important elements that you must regularly go over to prevent long-term problems with cash flow. For more information on the fundamentals, read our no-cost cash flow ebook for download and learn how to construct the cash flow statement.
Here are five ideas to instantly increase the flow of cash in your business:
- Pay attention to your accounts receivables. The Accounts Receivable are the customers who are owed money. Certain customers might delay paying you if the economy is down, while some may fail to pay. In addition, credit card customers may dispute charges. It is the perfect moment to watch these issues carefully and develop an action plan on how you'll handle problems that could occur.
- Make sure your customers pay you quicker. To encourage your customers to pay you more quickly and avoid not receiving payment even once, you can provide discounts for prompt payments. Even though your invoices may be due within 30 days, it is possible to offer a discount for those who pay promptly. Again, it is ideal for moving away from billing customers and encouraging them to prepay your services. Again, offering discounts is an excellent alternative to make them pay in advance and swiftly earn cash.
- Make your payments a bit more slowly. On the other hand, like your customers, you likely have unpaid or coming accounts payable or payable. The longer you put off the time to settle your bills, the more cash you'll be able to keep in your bank. However, it would be best to keep in mind that companies that slowly pay their bills will not be the preferred vendor. It is important to be weighing the pros and cons, as the slow payment process can harm relationships with vendors. However, too fast payments can affect the flow of cash. Find the best combination, and then push for the payment terms you want.
- Buy less stock. Many businesses make the error of purchasing excessive inventory quantities, which could cause a huge amount of money. Instead, consider whether it's beneficial for your company to have less inventory in stock and only buy inventory when required. In the meantime, it is best to dispose of all inventory that isn't needed and recover some of the cash even if that requires selling at a lower price.
- Request discounts: Create an inventory of all the vendors you deal with and sorted according to the amount you pay them. Contact the largest ones and negotiate lower costs. You may even want to sign a contract for a longer period with them to get lower costs. Keep in mind that this recession will come to an end, and you're trying to make it through it for the moment.
Here are three long-term solutions to address cash flow issues:
- Drawdown credit lines If you already have a credit line, this is the perfect moment to draw it out so you have enough cash to deal with any situation that could occur. It isn't easy to forecast the future and how long it'll be able to recover; thus, it's best to have money in your bank to deal with the worst-case scenario.
- Request an enterprise loan or lines of credit Getting credit during a crisis could be challenging, but it's worth trying. If you own assets such as tangible or real estate assets, you might be able to leverage these assets to obtain an account. For small-sized businesses, it is usually a matter of personally guaranteeing the loan using your home.
- Request the SBA disaster Assistance Loan Get an SBA Disaster Assistance Loan SBA has made thousands of millions available to small-scale business loans with low interest. To find out more about the eligibility requirements and how you'll need to do, read our guide on SBA Economic Injury Disaster Loans.