Cash is king! This phrase is applicable before, during, and after a pandemic. If you are a small business owner, not only do you know this to be true, but you are especially vulnerable. With limited resources, many small businesses are not equipped to manage a drop off in revenue. Currently, businesses are shut down and unable to operate or generate profit. Despite alternative support and support packages, businesses need help to effectively manage their cash flow and stay afloat.
We compiled a list of tips below that apply to this particular pandemic as well as recessions, disruptions, or any general act of God that may severely impact your cash flow margins.
Companies that do not have money coming in, but have money going out are bound to run out of cash. As a result, businesses have gotten very creative in finding new ways to leverage their services and add value to their end users experience.
Many organizations have considered new services. Beer distributors, for example, have expanded their offerings and added new products. Distilleries are making hand sanitizer. Similarly, clothing manufacturers are making masks. Airlines are converting passenger planes to cargo planes.
Other companies have changed their sales channels. For example, if you are a retailer and your usual practice includes selling from your brick and mortar store, set up shop online and meet your customers on their time. This way, you can sell your products on a larger scale and continue to produce an inflow of cash.
Another solution is to offer discount pricing. If you have inventory collecting dust on the shelf, consider reducing its price to generate revenue. You may also consider selling raw materials that perhaps are unable to be transformed into finished pieces. There likely is an audience to whom this would serve.
While it is an unavoidable necessity to bring cash into your business, during these unprecedented times businesses are looking for new ways to minimize the flow of cash out of their operations.
One of the largest expenses for companies is labour. We all have seen if not been directly impacted by the large amount of furloughs and growing unemployment rate. But, layoffs are an unfortunate reality. Companies all across the world are exercising this practice. By freezing or reducing salaries, companies are able to manage the outflow of cash from their bottom line.
Inventory levels are also a good option to reduce. Purchase order quantities may be cut all together. This action alone will eliminate carrying cost, storage fees, and handling costs.
As for the management of accounts payable, depending on your relationship with your suppliers, ask to defer payments. During trying times, many businesses are willing to bend a little to accommodate your needs.
Consider Creative Finance Solutions
If you are in the B2B space and send out customer invoices on a regular basis, invoice factoring may be the solution for you. This alone will enable your company to collect working capital upfront as opposed to waiting on your customers to fulfill their payments. This is especially helpful when your customers, too, are facing challenges.
Cash management is not one dimensional. You cannot place your focus solely on generating more revenue or cutting costs. While dealing with the current reality, consider ways to stay ahead as you repair and rebuild your business model so you’re in a position to thrive during the next upturn of events.