Cash flow is the lifeblood of your business and managing it during the best of times can be a challenge. In the midst of today’s COVID-19 crisis, the challenge of managing cash flow to survive has increased 10-fold.

Fortunately, there are four steps you can do to optimize your cash flow through this crisis and keep your business moving forward.

Get a Holistic Financial View

If you haven’t revisited your cash flow statements and profit and loss statements in the last couple of weeks, do so now. Get very clear on your current costs, such as overhead, suppliers, employees, and utilities, and understand how they will change if your market tumbles. Also delineate where income is coming from, such as operations, investments, and financing, to better identify where the impacts will come and by how much. 

Additionally, while these statements are critical, they are not your entire financial story. Your income statement and balance sheet hold important information on your future cash flow and your business’s ability to weather these times. Your balance sheet may also reveal opportunities to free up cash flow through selling non-cash assets or making sure you’re not spending cash buying more inventory for products whose demand is decreasing.

Lastly, identify your practices around cash. These may need to be revised based on how your situation changes. Do you pay suppliers and vendors quickly? Do customers pay quickly now? Are they at risk of stretching that out as times become tougher?

Identify Key Risks

With a current and holistic view of your financials, it’s time to get realistic about how changes in market demand and your supplier network will impact your cash flow.

Market Demand – How are your customers going to be impacted by the COVID-19 crisis? What is the worst-case scenario if your demand drops off? Do you have a diversified customer base? Or do you serve a small number of customers that may put you at a higher risk? Alternatively, are the potential opportunities for your customers during this time? From your holistic analysis of your situation, is it possible that you’re able to extend your payment terms in lieu of losing the client entirely? Or offering a discount if they pay sooner?

Knowing these will help you plan your cash flow situation options. But they can also spark having conversations with your clients. By helping them plan their own path forward, you are helping your planning and building your relationship, not to mention potentially helping their business survive.

Suppliers and Vendors – Just like you, your suppliers and vendors could be at risk during this time. Do you rely on a smaller number of them that could impact your production capabilities? Or do you have relationships with a diversified number of suppliers and vendors that can keep your business moving? Have conversations with your suppliers and vendors. Be prepared to have tough conversations regarding slower payment terms. But either way, transparency and proactive engagement help grow your relationship and potentially identify new, mutually beneficial ways of working together during this time.

Increase Cash Flow Visibility

The COVID-19 crisis is rapidly developing each day. After reviewing your statements, start reviewing them more frequently. Monthly views into your cash flow will not keep up with the velocity of change during this time. Weekly, even daily, reviews may be needed to ensure you’re staying on top of this situation as it unfolds. 

Bring In Outsourcing Firepower

While it may seem counterintuitive to bring on more help during a potential cash crunch, an ounce of prevention can equal a pound of cure. If capabilities or experience are not available in-house, outsourcing the right financing and accounting talent can help you navigate a safer course through the rough waters ahead.

Element78 is here to help. Please continue to follow our blog and Linkedin profile for more information about succeeding through these difficult times. Or connect with us today and see how we might be able to help your specific situation.