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How to Manage Cash Flow in Crisis

Even in the best of times, managing cash flow can be a major challenge for businesses -- especially small and medium sized enterprises. If money was tight and unstable before disaster strikes, those cracks only deepen with crisis. Before long, they threaten collapse.

If we’ve learned anything during this pandemic, it’s that our global ecosystem is a lot more fragile than we realized. We need to be ready for anything. The math is simple: if more money goes out than comes in, the business is bound to go under.

So is financial ruin in times of crisis simply unavoidable for entrepreneurs in the startup to midsize market? Not at all. Managing cash flow is a learned skill, and if you’re trying to balance it all on your own, you’re doing it wrong.

Savvy entrepreneurs prepare ahead, knowing that their business needs to weather the ups and downs of the local and global economy. Putting in place a strong cash flow management strategy from the get-go bullet proofs businesses before they face an emergency scenario. US Accountants specializes in supporting SMEs with cash flow management, among a range of other concierge financial services that can be tailored to your organization’s needs and budget.

We want to guide your company to safety during even the most turbulent times. Among the many stressors you balance as an entrepreneur, cash flow in a crisis shouldn’t be among them. Not without expert insight, anyway. Ready to take control of your cash flow?

Getting your budget balanced before an emergency is ideal, but as the saying goes -- better late than never. By keeping these strategies in your back pocket, you’ll make it through the current crisis and cushion yourself in anticipation of future ones.

Optimize Your Profit Margins

If cash is running short, it’s time to go back to the drawing board and take a close look at your company’s business plan. Profit margins are key here. By breaking down profits, losses, and profit margins by category (e.g. employees, marketing, products, etc.) you’ll be able to uncover clues about what led to the current state of affairs.

Make sure to audit payables and receivables to make sure you haven’t missed any opportunities. This might include forgotten discounts, overpayments on taxes, or on the flip side, inadvertently charging clients less than the full price for your goods and services. Leave no stone unturned.

Figured out where you’re burning cash needlessly and where you might bring in more? Great. Adjust your business plan and put that data to work. By cutting out superfluous expenses and honing on in profit drivers, your company can channel its resources into getting above board, fast.

Create a Business Survival Plan

You’ve taken a good, hard look at the inner workings of your company and to maximize profit where you can. Now it’s time to think about designing a short-term roadmap to guide you to safety. This means analyzing the nature of the crisis that led to your cash shortage, and assessing how this may impact the economy (and your business) going forward.

At the same time, you will need to make projections about the effect of external events on your liquidity. Considering variable expenses like payroll alongside forecasted sales and accounts payable, you’ll be able to chart a path ahead even if your “worst case scenario” comes to fruition.

Negotiate Payments with Finesse

Nothing takes more courage than admitting you need extra support. While it might feel uncomfortable to speak openly with vendors or suppliers about your company’s cash woes, it’s better to be up front than to leave them wondering when payments arrive late.

If possible, come to a mutual agreement about delayed or incremental payments. Approaching such a conversation takes delicacy, since these business relationships rely upon trust. At the same time, if you’ve already established a strong rapport, you may have a little more leverage when making your request.

Be clear about what you can offer, and be willing to work towards a compromise. Especially in a time of universal crisis (think COVID-19), your vendors and suppliers are also facing an uphill battle to keep business afloat. Work with them to offer what you can and meet their needs, while keeping an eye on your own bottom line.

Ramp up Receivables

Need to bring in cash, stat? Turn your attention towards receivables. By making a few small, financially intelligent choices, your company can optimize revenue in the midst of an emergency.

  • Send invoices early and often. The sooner your invoice, the sooner payment will roll in. It’s that simple. We recommend invoicing frequently, rather than waiting to request payment on a particular day of the month in one lump sum. A smaller, steadier cash flow is better than being left high and dry until the end of the month.

  • Making payments a breeze. Anything you can do to cut down on friction will pay in dividends down the road. That might mean accepting new forms of payment: PayPal, credit cards, Venmo, cash. Streamline paying so that it’s as simple as pressing a button, swiping a card, or opening a wallet -- whatever is easiest.

  • Request deposits. A partial payment from new customers will generate cash on-the-spot. This way, you don’t have to wait until after the fact to see your bank account reflect your customer base.

  • Zoom in on past due accounts. Reach out to clients who are late on payments. Don’t be shy about asking for what’s due. Even if the best they can offer is a percentage of the total, it’s one step closer to financial solvency for your enterprise. That’s not something you can afford to turn down.

Channel the Wisdom of a CFO

When times get tough, entrepreneurs need to look at their entire business through the lens of a CFO. Considering every angle of operations by harnessing deep financial insights is the best way to rev up cash flow. But what if you simply don’t possess the financial know-how to “think like a CFO.” The good news is, you don’t have to. Hiring a virtual CFO to help you navigate through and out of a cash crisis is one of the smartest moves you can make.

The Bottom Line

No matter which way you slice it, there is no shortage of ways to manage cash flow in crisis-- provided you’re armed with the right financial insight. Cutting back on variable costs, revisiting financing and investor capital, and selling off non-essential assets can be added to the list of potential tools in your toolkit.

Of course, avoiding a cash flow crisis in the first place is every entrepreneur’s goal. The best way to do that? Plan ahead and enlist the expertise of a Certified Professional Accountant.

US Accountants can help you develop a strategy to manage cash flow before (and when) disaster strikes. Request your free demo to keep your business afloat during challenging times!

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