Here are Five Ways You Can Maintain Cash Flow in the Time of Crisis
Here are Five Ways You Can Maintain Cash Flow in the Time of Crisis

Here are Five Ways You Can Maintain Cash Flow in the Time of Crisis

Posted by  on 08 May, 2020   4 minute read

There is a lot of confusion among business owners and managers between cash flow and profitability. It may seem ironic to you at even a highly profitable business can find it difficult to pay all its bills. Cash flow is something that makes your business continue running in all kinds of economic conditions – even in a crisis. Interestingly, profit is a term that exists only on paper. It doesn’t have as much impact on the day-to-day operations of a business as cash flow has.

With all the types of businesses struggling under the current pandemic crisis and the lockdown it has forced governments to implement, this is also a time of business crisis. So how do you maintain cash flow in your organization in such a crisis?

1. Control Your Expenses

Expenses are the way cash leaves your business. There are both fixed and variable expenses and you can take steps to lower the latter ones. The variable expenses in a typical business include the following:

  • Materials
  • Subscriptions
  • Contractors
  • Entertainment
  • Commissions

These expenses, unlike fixed ones, go up and down based on the volume of orders. You may have even more types of expenses that can fall into this category. Once you have the list and the respective details, you should look at the costs that can be decreased without affecting your business.

  • Prioritize the variable cost factors based on urgency
  • Reduce all unimportant and non-urgent expenses
  • Temporarily reduce or do away with perks

Consider reducing all expenses that don’t have a direct impact on the way your business works.

2. Track Cash Flow Using Technology

If you cannot track your company’s cash flow, you cannot take the right steps to manage and maintain it. The best way is to use technology to track it. This means using the right accounting software that can provide real-time insights. It should help with:

  • Budgeting
  • Managing cash flow
  • Providing an accurate account of cash in-flow and out-flow
  • Projected cash flow

It is recommended to use an application that is specially designed to track cash flow. It can make a huge difference compared to a general accounting software.

3. Ask Your Customers to Pay in Advance or Earlier

If you have built strong customer relationships through your years in business, a crisis is a time to cash them. Reach out to your special customers and ask them to make advance or earlier invoice payments. You may even consider offering them discounts to make the proposition lucrative.

At the same time, you should also check any and all outstanding invoices. It is important to increase collections activity during times of crisis. If you don’t already accept payments through credit cards, consider adding it to your payment options. This will allow you to charge immediately after you get the consent from the customer.

4. Switch to Leasing Instead of Buying

If you need new assets during a crisis, it is best to lease them instead of buying them. The goal is to preserve cash and prevent your business from getting into too much debt. Leasing allows you to make smaller payments over a period of time. This helps maintain the cash flow for your everyday operations. It will still account as a business expense and can be written off on the taxes.

5. Increase the Prices

Another crucial step you can take to maintain or increase your cash flow is to increase the prices. It is recommended to follow this strategy only after you have used up all the above-mentioned options. Make sure to consider the following points before planning the changes in your prices:

  • Prices charged by competitors for the same products
  • Have the equipment and inventory prices increased?
  • Does the price translate into value in terms of the time and effort put in to create the product?
  • Do the current prices seem too cheap?

It is important to know how to seek opportunities to increase prices and still keep them competitive. The prices should not be too high to scare away customers or too low to make your products seem cheap.

Avoiding a Cash Flow Crisis

As a smart business manager, it is important to always be prepared for difficult situations. Even when you are dealing with the current crisis it is recommended to take certain steps to protect your business interests in the long term from the perspective of cash flows.

Some of the steps you can take to be prepared for future crisis include the following:

  •  Avoid over-reliance on the primary source of funds. You can seek new and additional funders in addition to financing from one or more banks.
  • Consider creating innovative supply chain finance programs to free up cash flows.
  • Keep up-to-date financial statements to get a clear view of future cash flow situations.
  • Create systems to ensure that invoicing is maintained up-to-date. Send out all invoices quickly and provide a wide range of payment options.
  • It is also recommended to look for new borrowing opportunities because many lenders can be eager to offer attractive deals to win new businesses.

So dealing with a crisis is not just about the immediate steps. You should also learn from the current situation and be prepared for any potential future crisis. Taking the above-mentioned steps should help you sail through the current crisis and preparing for the next crisis can help ensure that it will not be as difficult a situation as it could be if you were unprepared.

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