The Coronavirus pandemic is – thankfully and hopefully – behind us and most small businesses in the country have either recovered or are in the process of recovering. But whether or not your business is fully back on its feet, there are always dangers lurking that could cause a financial crisis, including:
- A slow economy
- An unexpected rise in costs
- The loss of a major customer
- An unexpected natural disaster
All of these things can cause a cash flow crisis. So how can you prepare?
Be Laser-Focused on Your Cash
All these things – and many others – can significantly impact a small businesses’ cash flow. Maybe the crisis is short term, or maybe not. But regardless it’s still imperative to take whatever steps we can in our crisis management strategies to conserve our cash.
This means doing everything possible to maintain or ideally even improve the company’s cash position. Conserving small business cash flow is imperative to the success of a business long term, because cash flow problems can mean running out of the working capital you need to pay your employees, suppliers, bills and other expenses. Moreover, cash flow issues can mean you won’t have the flexibility to make decisions that could improve the long-term health of your business, such as investing in the development of a new product or service or getting financing when you need it. Given all of these risks, you should always be minding your cash flow—crisis or not.
How Can a Business Save Money Quickly?
1. Talk to Your Bank
My company uses a large, multi-national bank. Like many other banks, big and small, mine has been very sympathetic to the plight of its business owners when they encounter unexpected challenges. I have a close relationship with my banker, so we’re able to discuss ways my business can move beyond any crisis in months, not years, and be prepared for when things bounce back. It’s important to make sure your bank commits to their lines of credit and that they can help if you need even more. You should discuss potential deferrals of payments or extensions of terms. Assuming you have a good relationship with your banker, you’ll likely find that the response will be encouraging because it’s in your bank’s best interest to succeed. As I write this, our credit and financial system is sound. And unlike the 2009 recession, capital is still readily available. It’s important to evaluate all financing and credit resources, while keeping your options open and doing your best to not spend.
Moreover, there are lower-interest loans available from the Small Business Administration that are specifically for small businesses. These loans are federally guaranteed so many businesses that lack credit history or other requirements needed for a traditional bank loan can still get financing. These loans can provide needed funds for working capital, property and equipment purchases and are available both for very small and established businesses. Some are offered through banks while others can be found through nonprofit organizations and community lenders. Depending on the nature of the loan you may be able to borrow up to $5 million with varying re-payment terms. Having this financing available would be instrumental in helping you navigate any potential cash flow crisis.
2. Talk to Your Vendors and Customers
For vendors who are large companies with more resources to absorb a slowdown, you should be asking for payment extensions. Big companies, like the banks I mentioned above, are also sympathetic to any crisis that their smaller customers face and you’ll find that most are willing to bend some terms and rules to help see us through a challenge.
On the customer side, you should be stepping up your procedures to get your invoices out the door as fast possible and make sure that your accounts receivable people stay on top of any slow paying accounts with email and phone reminders. You may also want to consider offering discounts for early payments and pushing for credit card payments. Yes, these cost a little more, but the goal here is to get cash in the bank to see your business through the challenge.
3. Do A Full Financial Review
Just this morning, I printed out our year to date general ledger. I consider this general ledger to be the diary of my business because it shows every transaction recorded. When things are busy and the economy is strong, like it was just a few weeks ago, I sometimes tend to get careless in my small business cash flow management. But that’s not a good practice, so I’m paying closer attention. Every month I review each general ledger account. I’m cancelling unnecessary recurring charges for products or services. I’m questioning why we’re spending money. In a crisis, it may be necessary to put some contractors and projects on hold. Of course, the intention is to resume as usual once things get back to normal, and hopefully that will be the case. But in the meantime, cash is king and in a crisis we should all be very strict in how we spend for the near term.
Here is what I wouldn’t do in a financial crisis. Unless there are no other options, I wouldn’t be laying people off, because unemployment has been tight and when things get back to normal I’m going to need them. Plus, it’s just not right. I would also not be skimping on sales and marketing investments, because those things – like advertising, website development and customer relationship management software – are the things business people need if demand falls off.
Finally…don’t panic. Over the years, I’ve been fortunate enough to build up some cash in the bank because the last few years have been good economically for me. Because of that, I can make better decisions. If that’s not your situation, then I hope that not only will your business survive this crisis, but that you also take away this lesson: keeping enough cash is critical to survive any downturn.
The Bottom Line
Conserving cash flow is one of the smartest things you can do amid a financial crisis. Your cash situation affects your ability to weather unexpected negative events, such as a big drop in sales and revenue or an extended business closure or slowdown. The more cash you have on hand, the more flexibility and resilience your business will have. And thankfully, there are many potential ways to improve your cash flow—you just have to spend some time exploring your options and talking to right people and organizations who can help.
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