We are living in uncertain times and facing huge economic challenges. Whilst it feels so much of the situation is out of our control, there are several steps that business owners can take to help protect their finances.
Cash is king – more than ever
Now more than ever, it is vital that you manage your cash flow as a good cash forecast is a useful tool for flagging any potential problems and identifying what arrangements are needed. Knowing your cash position will take away some of the uncertainty and reduces the need for knee jerk reactions.
Start by examining your debtor’s ledger to establish what cash you expect to receive. Issue any invoices swiftly and chase those invoices that have not yet been paid. If appropriate, you could offer a discount for early payment and if some of your customers are struggling to pay, consider setting up a payment plan with them so you have slightly more certainty over money coming in.
Endeavour to routinely assess the credit terms that you are offering each client - are they still appropriate for that organisation’s risk profile? If necessary, scale back any credit terms with customers.
Communicate with Creditors
If disruptions to your cash flow are affecting your ability to pay invoices, then talk to your suppliers as most will want to retain your business for when things pick up again. If needed, enquire with your creditors about arranging flexible monthly agreements rather than long term commitments.
Speak to your lenders about your position and help build trust by showing them you have a good understanding of your cash position. Now more than ever, honest and open lines of communication are key to maintaining relationships. Eggs and baskets
I would recommend carrying out an audit of your customer base to assess how reliant you are on certain customers. Consider ways to pivot your business and explore alternative revenue streams – it is well noted that there is a link between creativity and times of hardship. Equally, do you have a backup supplier in mind in case your current supplier ceases trading? Government Support
Much has been written about the Coronavirus Job Retention Scheme and Bounce Back Loans, however, there are many other grants and loans available. Visit the gov.uk or local enterprise partnership websites to see what governmental support might be available for your business and I would recommend setting up a process to regularly monitor the support available.
Now is the time to review your spending to identify what is essential and what is discretionary. It could be helpful to divide your spending into different categories – costs that are essential to business operations and therefore your ‘must-have’ costs, costs that are currently not relevant such as travel budgets and office supplies, and finally costs that can be postponed such as marketing campaigns or new projects. Dividing your costs into these categories will help you see more easily where cuts can be made. Take some time to review the levels of stock that you are holding – is it still appropriate for your current output?
As staff costs typically represent the highest fixed cost for SMEs, consider reducing staff working hours and/or temporary pay cuts. Whilst this isn’t ideal in the short term, it does provide longer-term job security by ensuring the company remains solvent. To support your workforce, ensure they have access to information on the financial help currently available to individuals such as mortgage holidays.
However, as we have already seen in the UK, some companies will inevitably have to make redundancies. This should be the last resort once all other options for reducing staff costs have been considered and the process must be handled with care and empathy. The usual regulations around redundancy still apply so seek advice if you are unsure of the correct processes.
Best, worst, and somewhere in between
No one knows how long this pandemic and economic fallout will last. There will be a best-case, a worst-case, and a somewhere in between scenario for every business. Whilst you cannot control the outcome, you can be prepared by running various scenarios through your financial models and cash flow projections and then have a plan for each possible outcome. As the situation is fast changing, you must keep remodelling each of these scenarios.
Can I help?
If you would like to chat through any of the above points or have any questions, then please get in touch and I will be happy to help.