The coronavirus lockdown is causing unprecedented disruption in the business world. With social distancing measures likely to remain in place for some time yet, businesses are having to radically rethink their planning and forecasting. This is made even more challenging by the lack of clarity on the government’s lockdown exit strategy. Which businesses will be allowed to open and which ones will have to stay closed?
With all this in mind, cash flow planning is an urgent priority. However, the difficulties we’ve mentioned make it an incredibly challenging task for small business owners.
We’ve spoken to accountants to understand the best ways you can approach your cash flow and business continuity planning.
1. Understanding cash flow is key
The word from accountants is that many of their small business clients struggle with their financial awareness. Having an understanding of your cash reserves and whether you are cash-flow positive or negative is hugely important – and the first step to tackling the short-term situation.
Our detailed cash flow guide and e-learning exercise will take you through the basics. Once you’re up-to-speed, you’ll be better placed to look at business continuity and scenario planning.
2. Tackle the short-term
Thinking about things on a day-to-day basis is entirely understandable given the acute pressures we’re all facing. The immediate priority during lockdown will be to survive the short-term situation, particularly whilst waiting on funds and loans. That will mean tactical moves that will ease your cash outflow.
- Identify business-critical payments but pause anything non-essential.
- Cancel those direct debits and standing orders.
- Ensure you’re taking advantage of VAT and Income Tax deferral.
- Check out the government support that’s available to you including the Coronavirus Job Retention Scheme.
3. Don’t lose sight of the long-term
However, businesses need to look at the bigger picture as well as the short term to ensure they’re in a strong position post-lockdown.
Use your financial records to project cash flow over a 12-month period. From here, you’ll be able to work out your pain points. For example, are there months when a significant payment is due?
Then you want to factor in what would happen if you lost a large or key client. It might not make pretty reading but it’s a fundamental consideration when you’re thinking about your financial needs. That loss of income might drastically alter your ability to cover your overheads but could be managed through a cash injection – ie. business grants or other funding options.
Software providers like Futrli can massively help to ease this task, by using AI to inform your forecasting and reporting. Informi readers can sign up for free and get the first three months of the paid version ‘Flow’ for free.
To access the limited time offer:
1. Go to Futrli
2. Register for free
3. “Upgrade to Pro” and use the code COVID_INFORMI at the checkout.
4. Deal with creditors and debtors
It’s important to get on the front foot when it comes to dealing with creditors and debtors. That should be the case anyway, but now’s a great time to really tighten up your processes.
- Make sure invoices are sent early (and don’t be afraid to chase unpaid invoices ahead of when you normally would).
- Make it easy for customers to pay you.
- Look for early payer discounts.
- Agree on clear payment terms and plans.
Sometimes it’s easier to pick up the phone and speak to your creditors and debtors. Everyone is aware these are challenging times and it’s fair to be upfront about your situation. Creditors may be able to offer payment holidays and debtors are more likely to prioritise payment if you have a good relationship with them.
5. Procurement is wise
It’s, of course, prudent to cut back on expenditure. Look at your suppliers and enquire where there might be room to either negotiate costs or, if not, explore alternative lower-cost options. Don’t limit this just to physical supplies, think too about utilities and service providers. Could you save money by switching business bank accounts? Are you overpaying for your business insurance?
A nice tip we always mention is to use cashback websites when switching suppliers. For example, changing to a different broadband supplier might earn you hundreds of pounds in cashback and save on your monthly bills too. Do this with every supplier and you can quickly build up some bonus cash.
Think about this holistically. Small savings across the board over the course of the year will massively help – even if on their own they seem minor.
Of course, one of the biggest savings you can make is on staff costs. Needless to say, taking advantage of the government’s Coronavirus Job Retention Scheme is something many businesses are already exploring.
6. Look for alternative revenue streams
This is easier said than done depending on the type of business you run. Some businesses have been able to pivot effectively, perhaps by shifting their service offering online or by operating as a delivery service. It’s likely you have already explored these alternatives, but, if not, there’s no harm in thinking outside the box.
Equally, perhaps there is an opportunity in the current circumstances that wouldn’t normally be there? Consumer habits this year will be massively out of step with what’s gone previously and it’s worth seeing if you can latch on to something. It might even be removed from your normal offering but perhaps you have the resource or infrastructure capabilities to quickly capitalise on an opportunity.
In our blog on notable business failures, we looked at an interesting example of product diversification when comparing Kodak with FujiFilm. FujiFilm actually started diversifying well outside its core photography portfolio, using its scientific knowledge to invest in beauty products – because it had the assets in place to do this.
One thing we haven’t mentioned is how important it is to use the expertise of financial professionals at this time. Speak to your accountant to see if they’re offering cash flow consultancy as part of their services. This can provide objective and actionable insights whilst relieving some of the strain on you.