It is easy to overlook cash management when things are good. Here are 10 steps to better manage your cash flow in times of crisis.
When things are good, companies focus on increasing their sales and reducing costs. However, when things go bad, they take steps to better manage and control their cash flow. Managing your cash flow effectively is one of the most important aspects of every business. A healthy cash flow ensures that your business can pay salaries and expenses and fund growth initiatives.
In our last blog post, we talked about the importance of planning for disruptions to your cash flow. Hopefully, it helped help you define a strategy for defining a course of action when disruptions occur.
As we have seen with COVID-19, it is not so much if cash flow disruptions occur for many businesses but rather when they will occur. In this blog post, I will discuss what action you can take to manage your cash flow in a crisis better.
In no particular order, here are some tips to control your cash flows:
- Actively manage your accounts receivable. A 30- to 45- day account review is not sufficient anymore. There is no better time than the present to shorten collection times and improve your collection process. As long as you are at it, you may also want to identify and address those customers that absorb cash from your business.
- Adjust inventory levels. The first step is to make sure your inventory on the books is accurate. Analyze customer demands and adjust future purchasing, as necessary.
- Adjust staffing levels. Look at your customer needs and use resources to adjust your staff levels. There are opportunities for loans and more monies for unemployment that could help and still provide for your business.
- Establish a deeper relationship with your banker. Be sure to discuss your cash flow and liquidity with your banker, paying special attention to any debt covenants.
- Prepare a cash flow forecast. If you don’t already have a cash flow forecast, there is no better time than the present to begin. Start with a simple 13-week projection containing your major cash inflows and outflows for each week. This will allow you to understand periods of cash difficulty and provide you with time to respond.
- Review accounts payable. While you don’t want to hurt relationships with your suppliers or your credit, talk to your suppliers about ways to manage your payments and shipments.
- Review all agreements. Look at current and upcoming commitments, and find those that can be restructured, delayed, or canceled.
- Review all costs. Determine those costs that can be eliminated, reduced, or renegotiated.
- Review customer payment terms. Consider offering early payment discounts or advance payment options for those customers who often fall behind on their payments.
- Review plans for capital investment. Of those planned capital investments, determine which capital projects can be delayed, eliminated, or modified.
Many businesses have been learning the hard way about the importance of managing their cash flows in times of crisis the hard way. Hopefully, you have been spared the economic pain as a result of the Pandemic.
If not, we can help you with funding to pay salaries and other business-related expenses. Call (800) 795-3919 or contact us today. If things are going well for you, we recommend that you go about implementing the steps above so that you can better manage your business when a crisis occurs. As you with many crises, it is not so much “if” but rather “when” the next crisis occurs.