Cash Flow Woes

Cash flow. It’s the be-all end-all of any business. It’s what pays the bills.

Over half of companies go out of business from a lack of cash flow—not a lack of profits. The key metric to gauge cash flow is whether your receivables are coming in quicker than your payables are going out. In other words, your company must get paid by customers faster than your company pays your vendors and suppliers. With many businesses now shut down or operating on a limited basis, it’s imperative to look at company expenses, both fixed costs and variable costs. Being proactive is always wiser than reacting.

Here are 10 simple actions you can take to help your business navigate the current environment:

1. Analyze line by line what expenses are necessary to continue operations and determine what can be temporarily paused until business returns to a more normal state—and see what can be cancelled entirely. You can also defer or suspend any nonessential capital expenditures and R&D work to maximize cash conservation.
2. With most employees working from home, consider canceling office expenses that are no longer needed, including cable or streaming TV services, janitorial, snacks, office supplies, nonessential repairs, etc.
3. With reduced sales and revenue, focus on decreasing company inventory levels, only keeping the minimum amount needed to continue business operations.
4. Take a look at which products are selling and which are not. For those sitting on the shelf, get rid of them. This inventory is just taking up space, and the extra cash coming in will help your bottom line move a bit in the right direction.
5. Before implementing employee layoffs, consider unpaid leave or offering salary cuts. Some staff may prefer a reduced salary versus no salary. Make furloughs or layoffs a last resort. Regardless, always be open and honest with your employees about the situation, which helps boost morale.
6. Start a transparent dialogue with landlords, lenders, vendors, suppliers, and customers. For example, communicate with landlords about your cashflow situation and develop a plan, which could involve a rent deferral with lease extension, paying half of the rent now and half later, planning a rent catchup at a later date, or even agreeing on a rent abatement.
7. Reach out to your lenders for some debt relief. Ask for payment deferrals, interest-only payments, or extensions on the life of the loan. Also look at using credit cards as a payment method, as many are offering no- or low-interest rates and extending terms.
8. Contact your suppliers and vendors to let them know of your current situation. Discuss product demand expectations and payment options. Request extended payment terms of 30-, 60-, or 90-day net, or even propose a discount for paying on time, if your company has the cash available.
9. Communicate with your customers and clients, exchanging business updates and outlooks, as well as real (and potential) variations in product demand. Just as you did with your lenders, talk with customers about any outstanding receivables and work out a payment plan for them. Again, bringing in someincome is better than none.
10. With interest rates near all-time lows, refinancing your existing debt to the new rate can lower your monthly payment (and ultimate payout). If your company has multiple loans, consider consolidating them into one larger loan at one low rate. You’ll not only save on the life of the loan, but you’ll most likely pay less each month and increase available cash.

For more insights about how to stay afloat and free up cash flow in these uncertain times, start a conversation with one of our business advisors.