Cash flow management in uncertain times


While we don't know the full impact of COVID-19 on business, we know that it's vital that you manage your cash flow.

The post-pandemic landscape is unchartered for many business owners. As we enter recovery, businesses must focus on protecting employees, understanding and mitigating risks, easing supply chain disruption, and, critically, balancing cash flow.

If you find that your business is facing cash flow difficulties, following a clear and concise plan and taking decisive measures can help you survive and thrive.

If faced with cash flow difficulties, there are three fundamental steps to follow. These will help you effectively manage your cash flow position and help you to move forward with an effective capital strategy.

What is cash flow?

Cash flow is the amount of cash or monetary equivalents that a business receives or pays out. It provides a snapshot of the cash coming in or flowing out of a business.

Review your cash position and set out an informed plan

Understanding your current cash position gives you visibility over your cash flow and working capital. It also gives you better control. Knowing your cash position is essential during a crisis. You’ll be empowered to forecast your future cash position, prepare for fluctuations, mitigate unforeseen risks, and, importantly, make difficult decisions quickly and effectively.

Simple steps for a quick survey of your cash position:

1. Review and adjust your cash flow forecast to evaluate the impact of the current situation.

2. Calculate the working capital your business requires for the coming weeks.

3. Review your capital expenditure and identify any contracts or commitments that might cause difficulties. Cut any non-essential spending.

4. Revise your debtors and creditors management. You might need to rethink your invoicing process to encourage earlier payment or be more active when following up on slow-paying customers. Conversely, to ensure your money out does not exceed your cash in, consider negotiating with creditors for payment extensions.

5. Assess your inventory control and management processes to minimize the cost of holding inventory.

6. Don't overlook your financial reporting and tax obligations; ensure that you stay ahead of the game by monitoring profitability, overheads, and stock levels, and assessing debtors balances and your tax obligations.

With an understanding of your cash and operational position, you’ll be well-placed to develop and implement an improvement plan for your business. It will become possible to easily sustain your cash flow and working capital.

Communicate with your stakeholders

No matter the size of your business, you’ll have stakeholders – employees, customers, suppliers, financiers, shareholders – who you must communicate transparently with.

Develop an action plan with stakeholders in mind and communicate this to them directly. For example, inform employees of your business plan and how it impacts their roles, now and in the future.

Communicate any service changes to your customers.

Ask creditors for payment extensions where possible in advance of issues arising.

Speak to your bank to see what they can do to help your business during this post-pandemic climate.

Seek assistance to address any forecasted difficulties as early as possible.

Take informed action

Waiting for a crisis to blow over isn’t an option. Fortunately, there are many rich resources available to help you mitigate cash flow issues. Use data and analytics to identify cash flow issues early, giving you time to take informed action.

Preparing an accurate cash flow forecast will help you estimate the amount of money you expect t. This will help you to maintain the financial health of your business.

With an understanding of your cash flow and operational position, you are well-placed to act decisively. It’s critical that you effectively communicate your plans with relevant stakeholders to ensure smooth operations continue.

"A good plan violently executed now is better than a perfect plan executed next week," George S Patton said. So, ensure that you do act and deliver on your set plans for positive results.

There are many resources available to small businesses – from governments, business organizations, and finance providers such as banks. Make the most of these, and the other tools and guides on Explore to enhance your cash flow strategy.