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Cash flow management in uncertain times

July 30 . 3 Min Read
While we don't know the impact of COVID-19 on business, we know that it's vital that you manage your cash flow

The post-COVID landscape is unchartered for many business owners. As we enter recovery, 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 survive and thrive.

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

What is cash flow?

Cash flow is the amount of cash or cash equivalents measures that a business receives or pays out. It provides a snapshot of the cash coming in or flowing out of a business.

Review your cash position and set out an informed plan

Understanding your current cash position gives you visibility over your cash flow and working capital (i.e., the money required for day-to-day operations), but it also gives you better control. Knowing your cash position is essential during a crisis. It will help you approximate your future cash position, prepare for fluctuations, mitigate unforeseen risks, and, importantly, make difficult decisions quickly and effectively.

Simple steps for a quick survey of your cash position:

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

2. Calculate your business' working capital required for the coming weeks.

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

4. 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 on 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.

5. Assess your inventory control and management processes to minimize the cost of holding inventory.

6. 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.

Communicate with your stakeholders

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.

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 to address any forecasted difficulties as early as possible.

Take informed action

Waiting for a crisis to blow over is not an option. Fortunately, you have the resources required to mitigate cash flow issues at your fingertips. Use data and analytics to identify cash flow issues early, giving you time to take informed action.

Preparing an accurate cash flow forecast will help you 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 – from governments, business organizations, and finance providers such as banks – ensure that you avail of these.

Business development

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