The Coronavirus pandemic has caused a small business financial crisis. If your business is anything like mine, you’re most likely already seeing a drop off in demand and a slowdown in traffic. Sadly, many of my clients who operate “non-essential” businesses have been forced to shut their doors to limit the spread of the virus. Many others that may still be operating are doing so at a much more reduced level of activity.
Why A Small Business’ Cash Flow Matters
All this impacts small businesses’ cash flow. I think this crisis will be short term and I’m hoping we’ll get through this in just a few months and we’ll see both demand and economic activity significantly increase. But for now, it’s 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, many whom are small businesses in financial crisis. The people I’ve spoken to also believe that we will move beyond this crisis in months, not years, and that the economy will indeed bounce back. I’m getting them to re-commit to my lines of credit and I’m already asking what’s needed to get more. I’m also discussing potential deferrals of payments or extensions of terms. So far, the response has been encouraging. As I write this, our credit and financial system is sound. And unlike the 2009 recession, capital is still readily available. I’m evaluating all financing and credit resources, while keeping my options open and doing my best to not spend.
Moreover, there are low-interest loans and a tax credit available to businesses that can help them weather the crisis. For example, the Paycheck Protection Program (PPP) is a loan program administered by the U.S. Small Business Administration in order to help businesses impacted by the COVID-19 pandemic. A business can get a loan based on the number of people it employs, and—the best part— the loan can be entirely forgiven by the federal government if the business uses the money toward payroll and other operating expenses within a designated time frame. Even if it’s not entirely forgiven, you only pay a 1% interest rate on the loan balance. If you don’t take advantage of PPP, you may be eligible for the Payroll Tax Credit, which provides a credit for each employee against your FICA payroll taxes.
2. Talk to Your Vendors and Customers
For my vendors who are large companies with more resources to absorb a slowdown, I’m asking for payment extensions. Big companies, like the banks I mentioned above, are also sympathetic to the small business financial crisis and are willing to bend some terms and rules to help see us through this challenge. I’m not pushing my smaller vendors and contractors yet. On the customer side, I’m stepping up our procedures to get our invoices out the door as fast possible. I’ve asked my accounts receivable to stay on top of any slow paying accounts with email and phone reminders. I’m also considering 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 my business through this 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. Not anymore. I’m going through each account. I’m cancelling unnecessary recurring charges for products or services. I’m questioning why we’re spending money. I’m planning on putting some contractors and projects on hold. Again, my intention is to resume as usual once things get back to normal. And again, I really do believe things will get back to normal in a few months. But in the meantime, cash is king and I’m going to be very strict in how I spend for the near term.
Here is what I’m NOT doing. I’m not 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’m also not 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, I’m not panicking. I’m lucky that I have some cash in the bank because the last few years have been good economically. 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 like we’re experiencing . 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.
Also, be sure to check out the Small Business Assistance Guide: COVID-19 Resources and Relief Options to learn more about valuable resources and relief options available to small businesses right now.
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