Recessions are a part of any modern economy and often happen in cycles, depending on the country and their respective financial situations. While governments can typically see the signs of an impending recession and brace themselves accordingly, the COVID-19 crisis threw the world a curveball in a completely different way.
The main difference is how quickly it all happened. A normal recession consists of two consecutive quarters of negative GDP (Gross Domestic Product) growth, whereas what the world is currently experiencing is more akin to a natural disaster.
Once the pandemic hit, businesses had to almost instantly close their doors and cease operations completely, or at least limit them severely. Combined with a general population who are being urged to stay indoors, it was a disaster.
However, not all is lost. If you’re one of the millions of businesses struggling with cash flow there are certain things you can do to protect that flow and keep yourselves afloat until calmer waters prevail once again.
Cash is critical
With less cash to keep your business well-oiled, understanding and mitigating its flow has never been more vital. You need to know exactly how much is available at short notice, what the impending revenues are, where it’s going in and out, and how much you really have in the bank.
To withstand the tricky financial times, cash flow management is one of the biggest tools you can use to survive until things return to normal.
Improve your margins
No one likes to change up their costs on a dime, but if you’re having cash flow issues it’s time to revisit your business plan to rethink your operations, expenses and processes. This will help you discover where the cash flow problem is stemming from and what you can do to minimize its effects. You can use Job Costing to examine all of your businesses profit and loss documentation as well as a deep dive into the different areas of your business.
Armed with this information you’ll be able to paint a wider picture of your businesses core services, including which ones are performing the best, which ones you should temporarily drop and which ones have the potential to grow best despite the climate. For instance, you may discover clients that have a bad billing to operation ratio, or overheads that don’t need to be there.
This one may be a little tricky as your suppliers are most likely experiencing financial problems of their own. However, having the conversation is never a bad thing and is always better than ignoring them completely or bending to their needs. This is an important relationship, so keep things positive between you.
Talk to your vendors, suppliers and lenders about your own individual situation and how you can reduce the cash flowing out of your business for the short term. Be honest and open, with plenty of documentation to back up why you need a little slack, as well as a proactive solution or payment plan to reassure them that you do intend to pay as soon as you can. One other option here is exploring supply chain finance options, which provides capital to businesses from the point of payment to a supplier, through to the point at which payment is received from their customer.
Grow your receivables
As well as reducing how much is flowing out, see what you can do to accelerate what’s coming in. The sooner you get what your company is owed, the quicker you’ll have cash moving around your business. Here are a few ways you can do this:
- Send your invoices as soon as the transaction or deal is made. At the moment, this might be better than sending everything out at the same time each month. Yes, this may make things a little harder to track, but it will bring in money faster than anything else.
- A good option here could be invoice financing, which lets you turn your unpaid or outstanding customer invoices into a source of readily available funding.
- Consider up-front or partial payments for new and existing customers, instead of the whole amount afterwards. Many may find this unusual but if you’re able to explain why in a professional manner they will understand.
- Make it easier for people to pay. If you don’t already, set up additional mobile and electronic payment methods to make sure that every cash-in channel is open.
- Chase up payments. Odds are that you’ll have clients or partners who have an outstanding balance with you. Of course, they’ll be facing their own difficulties but they are still obliged to pay you for services or products you’ve already supplied. As long as you adopt an understanding tone with a realistic payment plan, you are more likely to arrange some kind of understanding between both parties.
Talk to the government
Governments across the world have set up various support programmes and initiatives to help out businesses and their employees through the COVID-19 crisis. For more information on what you can do, visit our COVID-19 business hub – a centralised point of reference for advice and updates on all matters relating to managing your business throughout the current crisis.
Take a good look at your business operations from every angle and begin compiling a list of things which are essential, or could be lived-without for the short term. For instance, if your business is renting a location, see what you can do to reduce the rent, or even consider going remote for the short term. Slash bills, deliveries and run as lean as possible. You’ll be surprised at what you can save.
If things are really difficult, you might even want to consider selling rarely-used equipment or assets such as computers, monitors or other office equipment. This isn’t necessarily an act of desperation but if you need quick cash to pay off a bill or essential expense, it might just save the day.
Increase investor capital
You can quickly raise the working capital of your business by bringing in new partners or investors. It might be a hard sell if you are positioning it as an act to increase cash flow, but if it is a well-functioning enterprise that is likely to bounce back after recession, it might be an attractive prospect for an investor looking for a good deal. However, do bear in mind that this is very difficult to reverse and is a permanent decision for your business. Make sure you know who you’re going into business with, and whether or not they have good intentions. Don’t let a cash-flow crisis pressure you into making a choice you might regret.
Let us help you.
From invoice factoring and supply chain options through to business finance and debt protection, we’re here to help businesses stay afloat during these unprecedented times. If you have any questions, please get in touch with us at 1300 207 345, or click here.