The coronavirus is causing financial difficulties for businesses across the U.S. With the pandemic going on, it is taking small businesses longer time than usual to pay their bills. It’s clear that all businesses need to put good cash flow management practices in place and make every effort to stick to them, just to remain in business during the coronavirus crisis.
While it’s important to spend time on building your brand and generating sales leads, it’s downright vital in times like these to quickly cultivate a steady stream of what accountants call “free cash flow” — that is, the amount of cash coming into your company over and above all of your expenses. A local accountant may be a good resource for ensuring the financial health of your company isn’t at stake.
Here are five tips to help small business owners keep cash flowing during the coronavirus crisis.
1. Negotiate payment terms with suppliers
On the other side of the coin, check on the credit terms that your small business’s suppliers allow. Most suppliers allow thirty days to pay but you may be able to get them to extend that term to sixty or even ninety days, allowing you to keep the money in your cash flow pipeline longer.
2. Secure your line of credit
Banks get tougher when trading is weak. Talk to your bank or financier about their expectations around your cash flow and do what it takes to make sure your line of credit is secure.
3. Pay attention to loyal customers
Keep in more regular touch with your customers. Pay particular attention to those already outside agreed credit limits. Ensure that overdue accounts are chased quickly, but fairly. Consider offering improved prices or bulk discounts in order to reduce stocks without damaging the trading relationship.
4. Consider reviewing your systems
Do you know how your business is actually run from beginning to end? Do you know what’s happening with every penny in your business, or more importantly, that you have the ability to find out? A good accountant will pay for itself in no time. There are currently excellent deals on outsourced accounting services to help your business survive during the coronavirus pandemic.
5. Pre-sell products or services.
For owners who want to encourage sales sooner, pre-sell your products or services. You might couch the pre-sale as a way for consumers to plan for their future or get a jump on shopping. You can also offer to take old, outdated products back at a pre-arranged price.
6. Delay capital spending.
Unless the payback is very short (a couple of months at most), delay capital spending (such as buying a new building or equipment) when the business is in a cash crunch. In the long run, you have to invest in your businesses or see it die a slow and painful death. However, there are right times for investment. When a business is struggling to make payroll, it’s not the right time for capital spending.
7. Ask for concessions
If you have been assessed fees, penalties or interest, ask that they be waived. Request extended terms. Don’t hide from creditors. They will often be willing to work with you if you communicate with them — particularly if they think that the alternative to working with you is that they get paid nothing when you declare bankruptcy.
The Bottom Line
As the old saying goes, cash is king and when times get tough, money gets tight. And when money is more difficult and expensive to borrow, it’s especially important for small businesses to take steps to ensure that their cash flows keep flowing. Keeping the money coming in on a regular, sustained basis is the tricky part of cash flow management.
Limitless Investment and Capital Accounting and Financial Services during the Coronavirus Outbreak
If your business is in need of emergency accounting and financial services due to the turbulent times please reach out to the Limitless Investment and Capital team of accountants and financial experts TODAY!