Proper cash flow management is fundamental for every type of business. Especially in an event of market crisis – such as the current economic challenges posed due to COVID-19, businesses are facing disruption in supply chains, uncertain financial markets, a decline in sales and production, etc. These factors have majorly impacted businesses creating a cash flow shortage.
Hence, businesses need to strategize if a cash flow crisis may occur and must plan on handling a cash flow shortage. The agenda is to focus on using the business’s financial reports to estimate cash flow, expand cash flow, and completely evade cash shortages.
However, if you as a business entity have not yet analyzed how to handle business cash flow during a crisis. Then here are 10 tips that will help you maintain the cash flow in your business.
Be Prepared & Prevent
Businesses must always be prepared and prevent themselves from cash flow shortage. Business entities must maintain financial statements and take necessary steps to actively prevent cash flow shortages. This can be done by anticipating cash inflow and outflow, monitoring key performing indicators, using accounting tools and consulting accounting experts & CPA’s.
Updated Financial Statements
If you intend to handle cash flow during the crisis, keep your financial statements updated. Dedicate time to understand the financial picture of the business and update your statements often. This will help you analyze the various liabilities of the company and when they fall due, so that you can strategize the cash requirements accordingly and always be ready.
Make use of cash analytics to analyze the historical cash inflows and outflows. This will help you create a predictive model on the estimated cash inflows and outflows. During a crisis, validate the current circumstances and modify it accordingly. Cash analytics offers a comprehensive set of working capital diagnostic and can be used as a continuous reporting tool. It offers insights in terms of valuation, efficiency, and cash management.
Fixed and Flexible Expenses
Differentiate and identify fixed and flexible expenses to adjust the cash flow of the company during a crisis. You must classify costs and understand which expenses could be discontinued temporarily or permanently to save cash. Expenses that directly result in short term revenues must be continued until the situation improves.
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Revisiting & Altering Business Plans
Revisiting your business plans and progress is another way of handling business cash flow during a crisis. Inspect your business goals, targets, operations, processes, and re-examine them. Also, analyze the areas of your business that are profitable. Ultimately, if the market is not favorable, be conservative with your plans and execute them in time where they are more likely to be successful.
Accelerate Receivables & Negotiate Payables
Accelerate receivables and negotiate payables to increase the cash cycle in the event of a crisis. Depending on the business activity, you can accept orders in advance, send invoices early, focus on past dues, and make it easier for clients to make payments. While, on the other hand, businesses must also negotiate payables to reduce strain on the working capital and increase cash flow.
Suspension of Operations
Businesses are required to distinguish which processes are critical to continue operations and which processes can be suspended. It is also imperative to understand what resources are required to support critical operations. This way the business can reduce disbursements and still maintain an adequate amount of cash balance.
Loaning Capital or Extending Credit Period
Loaning capital from banks or institutes or extending the credit period is also an option to consider during an economic downturn to handle the company’s cash flow. However, taking a business debt is not the most viable option, considering you are already facing financial constraints. Nonetheless, if you choose to take a loan make sure you understand the interest rates, analyze all other options, and do not make a momentary decision.
Sell Company’s Non-Vital Assets
Selling the non-vital business assets is yet another resort for you as a businessman to handle the cash flow of the organization during a crisis. This is one of the last resorts you should opt for as assets can be sold only once and temporary relief can be expected. In the case of real estate, machinery, or vehicles, you may choose to rent or lease the assets so that ownership can be maintained, and overheads can be reduced.
Welcome a Business Partner or an Investor
Consider partnering or contracting with an investor. If you are comfortable with having a partner in the company, you may sell a share of the company to raise working capital and normalize cash flow during a crisis. Nevertheless, make a thorough decision before bringing in an investor and understand all spectrums of having a business partner.
Did you know that the best way to handle cash flow be it a crisis or not is to speak with an accounting advisor from Diligen – the best financial advisory, accounting, and bookkeeping company!
At Diligen, we monitor and improve key performance indicators such as your business’s day-to-day receivables outstanding and profit margins, so that you as a business entity can avoid any sort of cash flow shortages.
We understand the compelling requirement of businesses to outsource the accounting needs to a third party. Hence, our experts at Diligen also help other accounting and bookkeeping service providers in the US, UK, Middle East, Australia, Canada, and several countries across the globe. We ensure that our clients improve cash flow management by implementing smart bookkeeping and accounting systems, optimized to help business owners make strategic business decisions. Moreover, with our virtual CFO services, you can modify your business model, increase cash flow, and improve profitability to get your business out of the financial weeds and raise it to the next level.
For more information, follow this link to speak with our expert today!