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Planning for disruptions to your cash flows

planning for disruptions to your cash flows

In 2020, we all saw firsthand that the “improbable” is always possible.  How you are planning for disruptions to your cash flows?

There is little doubt that the world we live in today is different from the one of December 1, 2019.  For many of us, life was comfortable and predictable.  We were constantly surrounded by threats but none of us batted an eye because they were all improbable threats.  In 2020, we all saw that those improbable threats are always possible and a lack of preparation and planning can have devastating consequences to our families, homes, and businesses.  What are you doing to plan and prepare for these events?  How are you planning for disruptions to your cash flows?

While COVID-19 is really the first pandemic to touch so many of us directly, the truth is that there are many significant widespread disease outbreaks in human history.  The most recent ones include the Spanish Flu, Hong Kong Flu, SARS, Ebola, and others.

Pandemics throughout history have been associated with enormous negative impacts on not only health, but also the society, economy, and security of national and global communities resulting in significant political and social disruptions.  As a result, responsible small business owners should be preparing our businesses not only for future pandemics but for other unforeseen and unpredictable future events.  Such preparation can be the difference between life and death to a small business.

With this in mind, the question becomes “what steps can small business owners be taking to mitigate or control the risk to their company’s financial health?”

How to plan for disruptions to your cash flows

We did some research and have the following suggestion for how to protect your cash flow from another pandemic or other unforeseen and unexpected event.

Step 1: Engage with your professional advisors
Small business owners should be engaging their professional advisors about their legal and financial responsibilities, financial arrangement, and other key decisions.

Step 2: Know what constitutes insolvency within your jurisdiction
Ensure that they know and understand what insolvency means within their jurisdiction.  Insolvency is a financial state in which a person’s or company’s debts exceed their assets.  People often confuse bankruptcy with insolvency.

Bankruptcy is a legal process for liquidating what property and assets a debtor own to pay off their debts.  Somebody who is bankrupt is insolvent.  However, someone who is insolvent is not necessarily bankrupt.  Their financial condition may be able to be fixed without having to go to court.  There are many people who have turned insolvency around by increasing their income, cutting expenses, or working with lenders to create a plan for repaying debts.

Step 3: Hold regular meetings with senior management to review different scenarios
Hold regular meetings with senior management to consider the impact of different scenarios on the financial position of the business.  The pandemic is one such scenario to consider.  Perhaps, others include a dramatic economic slowdown, a sudden increase in costs, or other factors.

Step 4: Prepare forecasts in response to different scenarios
Prepare short-term cash flow forecasts and review these regularly against the scenarios that you created in the step above.  Test to see how your financial position would change in response to a lockdown, a disruption in your supply chain, your customer’s inability to pay, the loss of most of your workforce for a period of time.

Step 5: Engage with interested parties when things change
Engage with your lenders, banks, and shareholders to implement a regular communications schedule to keep them advised as to your situation.  Informing your financial stakeholders of your circumstances reinforces trust and avoids unwanted surprises.

Step 6: Identify sources of financial support in the event of a scenario becoming a reality
Consider what government financial support, if any is available to your business.  You should work with key lenders with this since federal, state, and local programs are constantly changing and they are most likely to be aware of the latest offerings.

Step 7: Identify and protect key suppliers
Prioritize and protect your key suppliers.  Know who to reach out to first when things go awry.

Step 8: Prepare and review contingency plans regularly
Prepare contingency plans to deal with current and proposed restrictions and events that affect your clients, employees, suppliers, and resources.

With the end of the current pandemic, COVID-19 on the horizon, history tells us that there will be another one.  It is not a matter of “if” another pandemic will happen, the question is “when”.  Additionally, there is always the possibility of another “unforeseen” or unexpected event taking place that we can’t possibly imagine.  With that said, the best time to plan and prepare is when you don’t need it.

Hopefully, this information is helpful to you in taking steps to prepare for the next unexpected event.

Need funding for your business?  Zip Capital Group can help.  Contact us or call (800) 795-3919 today.


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