May 4, 2020
Maintaining Cash Flow for Business Continuity During a Crisis
While 2020 started out strong for most businesses, COVID-19 has changed that landscape suddenly and dramatically. The impact of this crisis on world economies has forced many to adjust quickly to sudden changes in their cash flow, like slow or reduced payments from their customers or perhaps no payments at all. In times of financial difficulty, it is more important than ever to sustain cash flow until conditions improve. If your business has been hard hit, here are some cash flow strategies to help you and your key stakeholders quickly develop and put into action a solid plan to maintain business continuity.
Strategy #1: Reduce Cash OutflowThis seems obvious, but how you reduce cash outflow is very important. If you don’t think carefully about where to cut spending and by how much, you can end up hurting your business more than helping it. Here are some options:
- Delay implementing unnecessary projects or initiating any unnecessary capital expenditures.
- Negotiate delayed or partial payments with your creditors.
- Reduce or eliminate some financial obligations. For example, closing one or more offices even temporarily can save on utility expenses.
- Reduce inventory purchases. If you are experiencing reduced demand, you can save on inventory restocking costs.
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Strategy #2: Mitigate RiskCheck with suppliers and/or partners to determine if they will be able to provide the inventory, goods, or services you need. Remember that they, too, are dealing with their own cash flow and other challenges, so don’t assume it’s business as usual for them. If they are having issues with delivery, look for alternate sources for products and services you need to maintain operations. In fact, you might even want to consider doing this research even if your suppliers and partners are presently in good shape. Unfortunately, things are still very much in flux and could be for some time. Another form of risk that must be addressed is employee and customer safety. If you haven’t already done so, evaluate the cost of ensuring a safe environment for your employees and customers, including any changes to business processes, like network connectivity for remote employees or contactless service for your customers.
Strategy #3: Maintain Cash InflowAssess the ability of your customers to meet their financial obligations to you and be prepared to make concessions. Evaluate your accounts now so you can be ready to propose a reduced or partial payment plan that lets you maintain cash flow and helps them stay in business.
Strategy #4: Reduce Payroll Expenses…ResponsiblyDuring a crisis, it’s understandable that the initial response is to lay people off. Sometimes that is unavoidable, but before you make that decision, determine if and how you can maintain operations with a reduced, remote, or even an “adjusted” workforce. Investigate alternatives, such as offering reduced hours or job-sharing, before moving directly to layoffs or furloughs. Read this blog to learn more:
Strategy #5: Apply for Stimulus FundsThis, too, is constantly in flux. However, if you haven’t already done so, investigate federal, state, and local government stimulus programs, as well as other funds for distressed businesses in your industry. Read this blog to learn more:
Strategy #6: Tax DefermentsBe aware of tax allowances in response to the COVID-19 crisis, such as income and sales tax deferments (including installment payments). In the U.S., the federal government has already extended the deadline to pay income taxes. In addition, if you will be experiencing reduced income this year, you might also be able to reduce your periodic estimated tax payments accordingly.
Additional ResourcesReducing expenditures, renegotiating debt, and maintaining cash outflow and inflow will be critical during the months ahead. Make use of all the tools you have available to maintain your business operations until the crisis subsides. Contact ArcherPoint to discuss how we can assist you with business continuity and register for our upcoming webinar on business continuity, Leadership Discussion of Essentials for Today and Planning for the Future.
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