The lifeblood of every business, is cash flow. This is a key concern during normal trading conditions. Now though, the delicate balance between sales, creditors/debtors and overheads has been disrupted for many businesses by the impact of coronavirus. It’s important to find ways to manage the flow of cash through your business. This has never been more important.
Cash flow was an issue for most businesses even before coronavirus. Cash flow problems will prevent small business owners from paying their own creditors as well as fixed overheads like rent and staff salaries.
We want to help you deal with these issues, so we’ve sourced the latest advice on how to keep your cash flowing in the right way.
Follow our COVID-19 Marketing Guide for more info on how to manage your business during these stressful times.
What you can do, right now, to help manage your cash flow
Review and adjust cash flow budgets
Given the uncertainty over the COVID-19 virus, it’s important for business owners to carefully consider any investments in capital equipment until our current situation improves. In other cases, some businesses may take this opportunity to invest in new machinery or equipment to position themselves for the rebound and to create a competitive advantage in the future.
Business owners should review their Profit & Loss statements. One thing they can do is to look for savings that can be generated by cutting discretionary overheads. Where labour is a significant cost line in your business, consider ways of reducing staff wages to avoid layoffs.
You can for example, consider reducing contract labour and redistributing work to permanent staff. You might offer reduced working hours, if possible, or encourage staff to take available leave or leave without pay to preserve cash flow.
Chase those late payments
We know, late payments can be an awkward topic to discuss with some clients, but in the times we are in, it’s important for any business to chase those payments. Payment terms should be set out clearly in your contracts, and you shouldn’t be afraid of chasing up late payers.
Negotiate with your creditors
Remember, we are all in this together. It’s always a good idea to negotiate up front with creditors, but these are unprecedented times. Creditors may actually be more likely to understand if you are unable to repay at the rate previously agreed. Your business ceasing to trade isn’t good business for them either, so don’t be surprised if they’re willing to be flexible. They know it will pay off in the long run.
Incentivise early payment
There are many businesses that have found success in encouraging early payments from customers by offering discounts for paying up front. This can provide a quick cash injection when you need it.
While these tips are essential for dealing with the impact of coronavirus on your business right now, they also form part of day to day best practice on cash flow management.
For more details, and tips on cashflow management, follow us for Part 2: Cash flow management in uncertain times.