The COVID-19 outbreak – an unexpected event that has brought chaos and challenge in every aspect of our world. Not only does it have a very serious implication on people’s health and wellbeing, but the pandemic also directly affects the very core which significantly impacting the businesses and the economy.
Many small and mid-size businesses such as restaurants, bars, gyms and salons have been forced to shut amid government-declared lockdowns while others businesses have seen customer demands plunge as people isolated at home to avoid social contact. Given the scope of supply chain disruptions and revenue shortfalls, businesses need to take immediate and dramatic action to manage their cash. And even with the help of governments who initiated and implemented various programs and relief measures, the reality is many companies in all sectors and market size are still struggling in this aspect. Given the context, businesses need to adjust their operation for a prolonged economic downturn for severe disruption to business as usual. With that, business owners need to look at the internal factors they can control in order to survive.
Cash management at this point in time has become the most vital function that will keep the business operational. Having said that, here are a few cash flow levers that small and mid-size businesses can consider to managing the impact of COVID-19.
1. Expanding Online Channels
There is no question that social distancing is the new normal and is probably going to be a part of our lives for many months or probably years to come. Consumers are now hesitant to make a face to face contact and go to physical stores if not essential. As a result, a business shall be online to exist. Social media presence is essential, businesses should have a website or applications where consumers are allowed to choose products and be able to buy without leaving their homes. If you don’t have time or budget to set up a website, it’s quick and easy to set up a Facebook page and use its features to trade. By making it simple for your customers to pay for products or services, and by accepting different payment methods, you’ll increase the cash flow into your business.
2. Partnership with Supplier
It must be a cliché to say it, but we are all in this pandemic together. Businesses need to work together to figure out how they can keep their market and supply chains healthy. This means that companies should communicate to larger customers to find ways to get paid faster and big suppliers to stretch payment terms. Speak to customers to understand their own cash flow demands, and how to achieve the best results in the best interest of everyone.
3. Conversion of Fixed Costs to Variable Costs
Optimising your cash flows on a regular basis will really help the business during any storm and provide a proven long term contingency solution. Fixed cost is one of the areas that should be looked into if you are considering to lessen the overall expenses. For example, you might want to evaluate whether you can raise some cash by selling assets like vehicles or warehouses or equipment. Or it may be rented it out on a more flexible basis. It makes sense to use the proceeds and offset with other expenses such as repayments and maintenance.
4. Alternative Revenue Streams
You may need to look at new revenue streams if your current business structure could not be sustained during the lockdown. Exporters prioritising countries that have lockdown may need to study the options of offering their products or services in their local (domestic) market instead. This shall be considered especially when the goods you are selling are perishables and if your storage costs are high. On the other hand, if your usual business is selling produce to restaurants, you can evaluate selling to retailers or direct to consumers instead via your online channels. You can also utilise or make use of your Facebook page to share it with your communities.
5. Review Finance Options
Reviewing your finance availability, sources of extra investment and cash injection is essential. Check bank offers for a business line of credit or revolving credit. Banks provides assistance to businesses that require revolving funds to support their business. It can either be one lump sum or as several smaller amounts until you reach the agreed limit of a credit line.
6. Review Expenses
All cash out needs to be justified in a critical liquidity position. Some expenses will be necessary to keep the lights on, while some are suited to a higher growth environment. One way to secure an economical business and widely use practices is to evaluate all expenses and find out the objective that will provide you security along the way. Such considerations are as follows:
- Freeze all non-essential hiring
- Cancel all travel and/or training that is not operationally critical
- Review and renegotiate contracts (e.g. rent, phone, hosting services) or evaluate lower-cost vendors
- Identify and stop any non-critical discretionary spending (e.g consultants)
- Extend payables with suppliers to preserve cash
7. Cash Flow Forecasting
During an economic crisis, disciplined and justifiable cash flow management takes precedence and more importance than usual. Start by mapping out cash collections and inward remittances against expenditures of your business. Effective inventory management is also vital. As with financial management, regular forecasting is useful. This will equip you to make sound adjustments that help ensure you have more money coming into your bank account than going out.
Cash is like oxygen. You don’t think about it when you have enough, but when you start running low, it’s all you need to think about. Thus, it is also the best interest for your company to seek the help of professionals in these crucial circumstances.
CRESCO Accounting can help you with your requirements for preparing cash flow projections, debt restructuring, profit or business improvement studies, and accounting and payroll processing. We would be happy to discuss any of your requirements.
To know more about how we can help you, have a chat with our live online customer support. We can also set-up a video conference call with our accounting team based in F02-04, Oceanic House Providence Estate, Mahe, Seychelles.