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The impact of the coronavirus (COVID-19) pandemic on small business owners across the United States is astounding. As more small towns and large cities enact stay-at-home policies, revenues are grinding to a halt for businesses in just about every sector. As a result, entrepreneurs are scrambling to find ways to continue operating, but they face severe cash flow issues. In a survey we conducted during the first week of April 2020, 70% of business owners revealed they are very concerned about the economic impact of the COVID-19 pandemic.
The government is launching a variety of financial assistance and relief programs for small businesses, but they will take time to deploy. Because of this, you cannot wait to evaluate your current cash flow situation or look at ways to maximize your cash flow in the short term. This Balboa Capital blog post features business cash flow strategies to consider during the COVID-19 pandemic.
Cut unnecessary expenses.
Many businesses have slow seasons due to the seasonal nature of their products or services, making it easy for entrepreneurs to anticipate lower revenues and plan accordingly. That was not the case with the COVID-19 pandemic. It struck without much warning and caught businesses off guard. As businesses temporarily close their doors, stay open in a limited capacity, or transition to remote work, they still have expenses. Their employees, suppliers, and vendors need to be paid. Of course, there are several other business expenses, such as office rent, utilities, insurance, phones, and postage.
Now is an excellent time to review your company’s expenses to identify those that you might be able to cut. Of course, you cannot avoid paying office rent and business insurance, and you want to keep as many employees on your payroll as possible, but there are ways to trim your budget. For example, you can put the brakes on travel, trade shows, company perks, and freebies. Also, contact your accountant to ask if you can delay certain payroll tax deposits or break them into multiple payments.
Save as much cash as possible.
There is no telling how long the COVID-19 pandemic will affect the U.S. economy, so be proactive and start building up your cash reserve. You can begin by looking at your profit and loss statement to see how much cash you have remaining at the end of a particular period. Then, put as much money into your savings account as is feasibly possible.
You will have more cash on hand if you cut any business expenses. Take a reasonable amount of what you would have spent on business expenses and stash it away for the future. Putting away even the most minuscule amounts of cash will add up faster than you might imagine.
Ask suppliers for better terms.
Now that your cash flow is slower due to the COVID-19 pandemic, call your suppliers and ask them if your payment terms can be extended. For example, if you are on a net-30 right now, switching to a net-60 or a net-90 can improve your cash flow. Longer payment terms allow you to keep your cash during these uncertain times and use it to pay for things that can keep your business running.
Your suppliers are in the same situation as you, so they will most likely have empathy and try to accommodate your request. But, remember, you are a valued customer, and they want to keep you as such today and long after the COVID-19 pandemic has ended.
Send out invoices early.
With all that is going today’s business world, bills are being overlooked and paid long after due dates. However, you can accelerate your invoicing process now to help you get paid faster. For example, try sending out invoices every 15 days instead of monthly billing. In addition, bill your customers immediately after purchasing your products or services or when a project has commenced.
If your business accepts deposits from customers (before projects begin), you might want to consider changing your deposit schedule. You can increase your cash flow by asking for money upfront. However, if any of your customers express dissatisfaction, give them a different option. Also, let them know that your deposit requirements will revert to what they used to be once the COVID-19 pandemic ends.
As you know, cash flow is the amount of cash transferred into and out of your small business. For your company to stay healthy during the COVID-19 pandemic, you must do what you can to generate a positive cash flow and save cash for the future. Balboa Capital hopes that you found these tips to be helpful.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.