Back March 16, 2020

How to take care of your cash flow in difficult times

Every company, no matter its size or activity field, can encounter cash flow problems, especially when there are sudden economic changes. Emergency situations and unexpected events can happen anytime, we just have to lay the groundwork for them and, of course, learn how to ace them.

Small businesses are the most vulnerable as they can face lots of strategic and tactical challenges or unstable cash flow. Given the current context, many entrepreneurs are focusing on protecting their employees, on a better understanding of possible risks that can occur in their day-to-day activities and on managing crisis situations.

How do you deal with emergencies when they “decide” to make the scene?

In these moments, cash flow is king and entrepreneurs have to think of a plan of managing available resources until the crisis shows signs of slowing down. In order to do that, they have to take into perspective the whole ecosystem that keeps the business going, as well as the implications their decisions have on final clients.

1. Monitor and update your cash flow plan as often as possible. You need a decision support system that can offer you a clear image of your cash inflows and outflows, as well as a thorough financial planning process.

2.Try to renegotiate your terms, do your best to accelerate your receivables and delay your payables. The quicker money will start to flow into your business, the sooner your cash flow problems will be diminished.

3.Make sure you have a cash reserve for crisis situations. If you can, try to unlock money from assets that are not essential to your core business (you may consider selling stocks or other secondary equipment).

4.Carefully analyze your expenses for the next period of time and check what resources you need in order to keep your business up and running. Try to cut off the variable costs as much as you can and keep fixed costs under control.

5.Create different scenarios to better understand how much money you need and for how long. Take into account all possibilities: there is a chance things don’t work out, clients may not be able to pay you, expenses may increase a lot. Evaluate your situation: for how long can you come through with the money you have? Think of what you can do to gather as many resources as possible before rainy days appear.

6.Review your investment plans and with your cash flow forecasts in mind, see what you really need in the next period of time. What investments can be postponed until the situation gets better? Which of them should be reconsidered? What investments are required in order to get back on track and create a competitive advantage?

7.Take into consideration applying for a short-term loan. Use it to cover the immediate need for cash, whether it is the gap between cash-ins and cash-outs, the supply and purchase of stocks, the payment of invoices or the payment of other unforeseen expenses.

8.Factoring can be a good idea as this solution doesn’t require material guarantees, it will not affect your level of debts or other financial indicators and you will have more time and resources to find solutions.

9.Take good care of your team. There is one thing you can control in times of distress and that is the motivation level of your team. As you are their leader, they will most certainly wait for you to guide them and they will follow your example. Make sure you don’t add extra pressure by hiding the existent problems; if they will know what is really happening, they will trust you and the whole team more. Let them know what’s to be done so they will feel involved and will most likely help you to find the right solution. Supporting and having each other’s back is the best way to cope with rough patches. Do your best to make your team feel safe. Encourage work from home where possible and stay aware of the new solutions available for employees in the newly created context. As the situation changes from day to day, make sure your information sources are constantly updated.

10.Be flexible. Although you cannot directly influence a delicate event, you can control how you react to what is happening. Flexibility is the best answer when unexpected situations arise. Do your best to find opportunities and continue your business. Change your goals, change your business strategy, be open to new ideas and be ready to pivot if necessary.

Author: Sorina Miron