How can you ensure cash flow to your business during the COVID-19 pandemic? The economic crisis has further highlighted the importance of cash flow. From focusing solely on revenue and profit, businesses are now becoming aware of the common situation of "profitable business but insolvent" or struggling to maintain operations through the crisis.
Below are some solutions to improve cash flow management for business leaders and financial professionals when guiding business operations in the face of COVID-19 pressures.
Managing cash outflows
Conduct a review and implement changes to financial management processes to effectively manage cash flow, such as reducing costs and seeking suppliers offering competitive prices in the post-COVID-19 era.
Raise awareness of the importance of cash in a business, as money reflects a company's ability to pay its debts in difficult circumstances. Understand the importance of knowing when suppliers are expected to request payment and regularly review the payment schedules of loans to effectively manage cash flow.
Contact your business's suppliers and lenders to negotiate payment extensions, interest rates, payment terms, and overdraft facilities if necessary. This will help extend the business's operational lifespan and allow for business recovery once the difficulties subside.
Managing cash inflows
Raise employee awareness and clarify the importance of debt collection, knowing when customers are due and expected to pay. Regularly review and find ways to recover overdue debts, optimizing the amount that can be collected for the business.
Regularly communicate with and nurture key clients, major clients, or even existing clients to understand their business situation and strengthen the relationship between both parties. Clearly define responsibilities for each department within the company to maintain regular communication with clients in order to sustain long-term relationships.
Explore ways to expand into other market segments that the business hasn't considered or temporarily shift its focus, such as leasing assets or manufacturing products suitable for the current situation, to support cash flow for the business after COVID-19.
Considering the potential for capital recovery through reducing inventory levels, restructuring the inventory ratio in the company's total assets, and liquidating low-revenue but high-value goods and products that account for a large proportion of inventory, thereby reducing warehouse rental costs.
Seek solutions from policies, stakeholders, or expert advice.
Refer to and seek out support policies from the State and Government for businesses during difficult times, such as tax payment extensions, tax deferrals, suspension of tax settlements, as well as policies supporting the company's employees.
If your business has business insurance, review the terms of the policy in case of a pandemic or government lockdown to see if there is any support that would be helpful for your business.
Consult with economic experts or companies that provide business consulting services to find solutions to the difficult situations you are facing.
The company is calling on shareholders, capital contributors, and the parent company to provide additional capital or increase loan limits to maintain its operations.
Prepare cash flow forecasts and a business plan.
Cash flow management forecasts are based on assumptions, possible scenarios, and post-COVID-19 response measures. Assumptions include regularly occurring key events, as well as assumptions about reduced sales, difficulties in collecting overdue or uncollectible debts, or the inability to extend payment terms. The inclusion of assumptions about accounts receivable in the forecast requires careful consideration of their certainty to avoid cash flow shortfalls if these assumptions do not materialize.
This forecast ensures your business knows its cash flow situation at any given time (daily, monthly, or projected for several months). Based on this forecast, the business can make adjustments to its business plan and seek timely financial support to supplement cash flow and maintain production and business operations.
In the worst-case scenario, your business might face a cash shortage to pay bills or debts due. This doesn't mean your business is a failure; you, like any other entrepreneur, can't perfectly predict the future. Be persistent, resilient, and believe in yourself—that's already halfway to your goal.
Success is not final, failure is not fatal: it is the courage to continue that counts. - Winston Churchill
(Success is not final, failure is not fatal: it is the courage to continue that matters.)