Tightening Belts: Superior Cash Flow Management in COVID-19 Times

On paper, you can make profits. But if your business doesn’t have the cash to spare, your operations could grind to a halt. For instance, while you may deliver your B2B services to a business they could accept the invoice from you. In the books, they owe you. But since they take months to pay, you have a cash flow problem right then and there. Your money is tied up to unpaid products. And you fear collecting as these clients pay — but not today.

Cash flow issues are like small holes in a gigantic ship. Some time or another, these holes will cause the ship to miss the horizon and go down. You may think that the pandemic has brought a lot of cash flow missteps to many small businesses. It’s true, they do. But before the virus even hit the town, U.S. Bank research shows 82% of failures in business can be attributed directly to cash flow management problems.

The good news is putting your cash flow in order isn’t a pie in the sky. It’s definitely doable. Even better, there are concrete steps based on principles to make it happen despite the pandemic. Here’s some.

Minimize Costs to the Utmost

Definitely, this isn’t the time to splurge. With thousands upon thousands of small businesses all over America closing shop, you’d fare better if you stay as lean as possible. And tighten your belts in the process.

Yelp data reveals a stunning 97,966 small businesses have closed down for good in 2020. And that number has risen considerably as the new year ushered in.

The first thing that you should have done in March when lockdowns were being installed was to recalibrate your small business finances. After you make sure that your employees are safe, of course.

If for some reason, you have not examined your fiscal policy thoroughly, you should endeavor to make the following happen:

  • List your costs

We’re talking about fixed and variable costs: all the things that suck your cash on a day-to-day basis. As a rule, it’s a lot easier to take a cut from variable costs than from fixed costs. Explore your options? Is there a way you can defer the commissions for your sales agents? Or perhaps use other means of reward other than money?

A “tighten-the-belt” approach is to cut any cost that won’t affect your operation drastically. You should follow the lead of entrepreneur Brad Emerson in this regard. To stay lean and mean, he cut the airconditioning and computer maintenance costs.

If it can’t be avoided, find ways to minimize your costs. For instance, you can avail of fuel management systems or solutions that allow you to reduce fuel costs systematically. By giving you better visibility and real-time insights on fuel costs, these systems ensure you don’t waste a single drop of fuel. What’s more, you minimize harmful gas emissions, helping Mother Nature in the process.

employees doing brainstorming

  • Seek help

It’s everyone’s best interest that your business stays afloat. If you close, your suppliers will have a hard time looking for a new market. Additionally, your landlord may have to find another renter should you fold. In this regard, take time to ask for help in a nice way if you fall short of your obligations. A candid one-on-one talk to your landlord done at the soonest possible time should help you get by if you can’t pay your monthly rent.

Moreover, you should reach out to possible aids and grants government may give your small business. Do your due diligence and research. A concrete example is the CARES Act.

  • Collect Payables

This would seem logical. And it is. Go through your invoices and check out those that are due. However, a word of advice. Everyone is in the pinch right now. Make sure you get as human and empathetic as possible when you do the collection. Or you could lose a client that you have built for years.

Cash Over Profit

Sound mind-boggling right? But it actually is easy. Profit is the number you get when you deduct the total cost from your total sales. Profit is good but right now you need cash. You have people to feed and an operation to run. So refocus your efforts. Who needs profits in a paper if, by the time you get it, your employees have disbanded and left you?

For instance, you can use e-gift cards to generate cash. It’s low-cost and it’s low-effort. Another way is to offer exclusive discounts to current patrons. You don’t need much convincing and these people love your product so it’s a win-win.

What you need is better cash flow right now. So tightening belts should bid you well. When you refocus your efforts, your small business should stay alive for better days ahead.

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