Strategy 4: Cash Flow Management

Back to Basics

This next article is all about going back-to-basics, and ensuring that your business foundation is solid. In a virtual world and during this crisis, the more solid your basic business fundamentals are the more chance your business will survive. If your record keeping is chaotic or irregular; if you don’t have cash management processes; if your inventory controls are lacking, in this new environment the issues will grow exponentially. In a time of crisis and uncertainty, your business basics have to be right and tight. To get through any economic crisis remember, that a strong Cash Flow is your first defence and offence.

"...a lack of profit is like a cancer, if you don’t treat it, it will eventually kill you. But a lack of cash is like a heart attack, it kills you instantly and you drop dead – your business closes and its game over there and then" - Theo Paphitis

At this time your focus on cash flow and profitability have to go into overdrive. Your financial planning and reporting have to take centre stage. Revenue streams may dry up overnight and you have to be able to find ways to keep the company above water until the flood subsides.

In order to ensure your cash flow is good you are going to have to do all or some of the following:

• Cut expenses and non-essentials; What can you suspend or stop doing, what “nice-to-dos” can you eliminate in the short-term?
• Renegotiate terms for both your payable and receivables; Keep in mind you want to keep your best customers and suppliers as whole as possible but increase dialogue, so they understand what you are facing. With others, it’s time to review terms immediately.
• Payroll Reductions; Consider offering pay cuts instead of layoffs. Suspension of bonuses and/or commissions plans and elimination of positions that are not critical and non-essential as well as releasing non-performers are likely some of the biggest decisions you will face. Now is the time to trim out those who are not consistently contributing.
• Human Capital layoffs or furloughs; If you must lay off staff, do it all at once. Don’t bleed the team over time. Consider offering furloughs which keep benefits in place without pay. Any personnel you layoff, you will at some point need back so be careful not to cut too deep and find yourself without staff when business rebounds.
• Postpone big expenditures, purchases or improvements; If you planned building improvements, equipment upgrades, or other facility enhancements postpone them for a time. Only essential work should be completed at this time.

When cutting costs consider that they might be short-term only. Don’t make such dramatic cuts that it impacts your ability to pivot to serve the new needs of customers in your marketplace. To keep track of the basics and ensure you have a handle on your company’s cash position, you will need to increase the frequency of reporting. Daily reporting will give you more granular updates of your cash position.

To further store up your cash position consider ways to extend your credit or add a credit line. This fail safe, gives you some emergency funds to dip into if cash gets low. Getting additional credit doesn’t mean you have to use it. The additional access to credit and cash is there in case other measures fail to meet needs.

Keeping margins up and adjusting pricing is also critical during a crisis. You don’t want “give away” the farm, you want to add value to what you offer. Prices may even have to increase if the demand is high. Make changes to your price structure methodically and always with your eye on bottom-line profitability. Offering volume discounts or higher discounts for upfront purchases or bulk transactions.

To keep cash flow robust you also should consider adding ways for receiving payment. Add a PayPal account sign up for Apple Pay, find a way to accept credit cards. Offer your customers to pay you in more ways to get cash in hand faster.

Finally make sure your business is ready to apply for and receive benefits of any government assistance programs that may arise from a crisis situation. Educate yourself on the offers open to your business and the means of application. Stay persistent and diligent to take advantage of any assistance available. During this unprecedented global pandemic, governments are offering a variety of programs to keep your business afloat. If eligible, don’t be too proud. Use every resource offered so that you can survive and thrive.

Productivity into Profitability

During a period of economic crisis every department and every role has to focus on profit producing activities. Cost centres needs to pivot to more profitable endeavours whenever possible. Moving employees to new tasks and giving them new responsibilities that focus them on generating cash or reducing costs should be a primary driver of activity.

Using Time Logs and measuring how much of the employees’ daily work is focused on profit producing activities is a great way to measure results. Measuring results and reassessing goals and targets to hold everyone accountable. Remember to take into consideration the cost of retraining to help them pivot employees - don’t throw them into the deep end without adding to their knowledge and skills.

Direction of the Goals

These repurposed employees need goals redefined and the direction of the company needs to be consistently reinforced. If you are asking someone on your team to play a new role in the game, you have to show them where the goal posts are for them to score. It is important to keep in mind that during a crisis, goals are moving targets so sharing where you are and using visual aids to reinforce your goals is a great way to give everyone contributing a sense of achievement.

Delivery of Product or Services

It has already been mentioned that you may have to change not only the products and services you offer but how you deliver those to consumers also need to be adjusted. Curb side pickup or delivery services, and online sales need to be added to your plan. Consistency and quality of delivery to the customer is vital as you don’t want to negatively affect the customers you are serving, and you actually need to add focus on quality and consistency. Remember a measure of success will be how much of your current customers you are able to keep. Starting over or with no customer base will be exponentially hard

Now it's time to put these tips into action, if you have any questions regarding this, please get in touch. Next week's strategy is 'Marketing' - how to shift your focus and communicate your message, now that you have implemented a survival plan.