Posted on 18 March, 2020  |  3 mins

While we don't know what the impact of COVID-19 will be on business, we know that it's vital that you manage your cash flow

The current situation is unchartered waters for many business owners. During this time, businesses must focus on protecting employees, understanding and mitigating business risks, easing supply chain disruption, and, critically, managing their cash flow.

Should you find that your business is facing cash flow difficulties, following a clear and concise plan and taking decisive measures can help you through these uncertain times.

If facing cash flow difficulties, there are three fundamental steps to follow that will help you to effectively manage your cash flow in the short-term and position you to move forward with a working capital strategy in the long-term.

Review your cash position and set out an informed plan

Understanding your current cash position not only gives you visibility over your cash flow and working capital, but it also gives you better control over these. This is essential during a crisis as it will help you to approximate your future cash position, prepare for fluctuations, mitigate unforeseen risks and, importantly, make difficult decisions quickly and effectively.

Review and adjust your cash flow forecast to evaluate the impact of the current situation.

Calculate your business’ working capital required for the coming weeks – i.e. capital needed to maintain day-to-day operations in the short-term.

Review your capital expenditure and identify any contracts or commitments that might cause difficulties. Cut any non-essential spending.

Revise your debtors and creditors management. You might need to rethink your invoicing process to encourage earlier payment or be more active when following up slow-paying customers. Conversely, you may need to negotiate with creditors to seek payment extensions to ensure your money out does not exceed your cash in.

Assess your inventory control and management processes to minimise the cost of holding inventory. Get stock savvy with inventory control.

Don’t overlook your financial reporting and tax obligations; ensure that you keep on top of your financial reporting – monitor profitability, overheads, stock levels, and debtors and creditors balances – and factor in your tax obligations.

With an understanding of your cash and operational position, you will be well-placed to develop and implement an improvement plan for your business that will help you to sustain your cash flow and working capital performance.

No business is an island – communicate

No matter the size of your business, you will have stakeholders – employees, customers, suppliers, financiers, shareholders – you must communicate early and transparently with them.

Develop an action plan with stakeholders in mind and communicate this to your stakeholders. For example, inform employees of your business plan and how it impacts their roles now and in the future.

Clearly communicate any changes to your service to customers.

Ask creditors for payment extensions where possible in advance of issues arising.

Speak to your bank to see what they can do to help your business during this time.

Seek assistance as early as possible to address any forecasted difficulties.

Take informed action

Waiting for this to blow over is not an option. Fortunately, you have the resources required to mitigate cash flow issues at your fingertips. Using data and analytics cash flow issues can be identified early giving you time to take informed action.

Preparing an accurate cash flow forecast will help you to estimate the amount of money you expect to flow in and out of your business – including projected income and expenses – and can help maintain your financial health.

With an understanding of your cash flow – and operational – position, you are well-placed to act decisively. It is critical that you effectively communicate your plans with your stakeholders, as relevant.

“A good plan violently executed now is better than a perfect plan executed next week,” George S Patton said. So, ensure that you do act and deliver on the plans that you set out. There are many resources available to small businesses during this time – from governments, business organisations and finance providers such as banks – ensure that you avail of these.