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5 Ways to Manage Cash Flow, Increase ProfitabilityWhile cash flow management includes creating buffers for short-term disruptions, the Coronavirus pandemic is testing even the strongest of small business contingency plans. As these businesses adjust to operating in triage and recovery mode, they’re closely scrutinizing spending and making substantial pivots to keep their doors open and preserve relationships with their employees, landlords, and suppliers.
Here are 10 considerations for small business owners to help shore up additional funds:
Negotiate around your accounts payable. There are a few things you might want to look at. Review your accounts payable to understand who you owe money to, and reach out to see where there’s wiggle room—for landlords to offer grace periods on rent, for vendors to extend payment terms, anything to enable you to hold on to your cash. Review past monthly statements for subscription services you could pause. If you’re forced to delay payments, contact the vendor as soon as possible and share a plan on how you will stay on your debt.
Check in with your lenders. While securing a new loan could be difficult, you could check in with your banker to understand what they can offer. If your current revolving lines of credit or loans are tied to assets (such as accounts receivable, inventory, or equipment), there may be creative alternatives to consider, such as skipping 2 payments, then spreading those reimbursements over the following 12 months, or switching over to an interest-only payment schedule for 6 months.
Double check your cash on hand. Also ensure that you’re accounting for all available cash. Maybe you’ve tucked away profits in high-interest earning accounts (such as savings, CDs, or money market accounts) and forgotten about it. It might be a good idea to consider your personal savings, and whether your own private investment would help float the company.
Update your forecast. Project what your altered revenue and expenses might look like over the coming months, and be realistic based on your city, county, and state’s reopening plan. The objective is to identify potential cash shortfalls so you can address them with as much planning as possible.
Revisit outstanding invoices. Review your accounts receivable to confirm there are no outstanding invoices to be collected. If there are, consider incentivizing early payments by providing nominal discounts, or for large sums, accepting small payments periodically.
Maximize cash inflows. It was a mad scramble to work around shelter-in-place orders, lockdown restrictions, and social distancing guidelines to keep the businesses open. Many owners have spent sleepless nights converting their businesses to offer curbside service, gift cards, and online ordering, just to name a few pivots. Additional options could include requiring security deposits for custom products or extended contracts, a move to up-front payment for subscription models, and layaway programs, as well as utilizing other technologies to deliver services virtually.
Stay in touch. Maintaining regular communications as you move forward is vital. Keep the flow of information to your employees, lenders, vendors, and suppliers constant. And don’t overlook your customers! Put those email lists and social media profiles to work, and get the word out on the new ways customers can interact with your business. Consumers nationwide have rallied around supporting the small businesses in their communities, actively seeking out ways to support during this time.
Sell idle equipment. Holding on to old or excess equipment? If it’s marketable, sell it as quickly as possible for that small infusion of cash.
Barter supplies and services. Suppliers who are also customers might be interested in a "trade" where each company receives all or a portion of its respective payments in the form of finished products. Since the exchange value is usually set at each company's respective retail price, a barter agreement could effectively provide a "discount" equal to the net profit margin on your product, potentially allowing you to maintain cash that would otherwise be used.
Be aware of federal programs. The loans and grants around our government’s original infusion of $700 billion to stabilize small businesses are winding down, but that doesn’t mean a second wave of programs is off the table. It’s a good idea to stay in touch with the news and follow up with trusted financial institutions to understand if any future announcements could support your own small business.
Managing cash flow this year will be a combination of generating new income streams and reducing expenses. When your small business stabilizes, and our economy is in full recovery, feel free to revisit a few strategies and tips and reflect on your lessons learned to plan and prepare for the potential of another shutdown.
