Cash flow strategies in a time of crisis
Cash flow strategies in a time of crisis are important to assure all your cash is well managed and looked after.
If nothing else, the COVID19 experience has taught business owners a valuable lesson. A business can only succeed if it has the cash resources to do so. While that might seem like nothing more than common sense, many Canadian business owners were caught with heavy debt loads when their businesses were forced to shut down during the pandemic. With all that lost revenue, more than a few businesses were forced to close due to the lack of capital.
Moving forward, Canadian business owners and managers will need to learn how to better manage cash flow during a crisis. While the pandemic has been an extraordinary event, no one can afford to think things like this will never happen again. With that said, we would like to offer the following six (6) cash flow strategies on how to better manage company cash flow during a crisis.
1. Constantly Monitor Your Cash Flow
Now is the best time to assess where your company is from an available cash perspective. If you learned nothing else from this latest crisis, hopefully, you learned that cash is KING. As long as your company has available cash resources, you will have the ability to get the company back on track even under extraordinary circumstances.
In an effort to protect your cash flow, you need to keep a close eye on what is going out and what is coming in. By close eye, we are referring to you constantly monitoring your company’s cash position. That will allow you to see and react to little issues before they can turn into big issues.
2. Digitize Your Payables and Receivables
You need to be nimbler in your efforts to closely monitor and manage your cash. The days of having time to do things manually have long passed. It’s now time for you to make sure all cash processes are done through the best digital technologies.
For your payables, you need a process that ensures all payables are in your accounting system as quickly as possible. You need to know what’s due and when payments need to be made. Having an effective strategy with electronic accounts payable will help you see opportunities to take advantage of payment discounts.
By also making sure you have your receipts posted as quickly as possible, it will be easier to match available cash with your company’s payment responsibilities. It will also give you the ability to see potential collection problems earlier rather than later, which makes them easier to address.
Finally, having a digitized cash management system will save your company time, effort, and money. That will allow you to focus your manpower on hiring people who generate revenue instead of hiring people to count the beans.
3. Invest Unused Capital
As your cash balance builds from effective cash flow strategies, you need to put that extra cash to work making more cash. If you don’t have the expertise as an investor, hiring a financial advisor would be the right call.
As an Assante financial advisor could bring great value to your company. They can help you develop investment strategies that keep your money growing while helping you maintain the liquidity you need to effectively manage your business. Over time, you can learn to become an effective investor, which will give you even more flexibility in terms of becoming a good cash flow manager.
4. Be Very Proactive About Collecting Receivables
It doesn’t pay to be lenient with customers. They too are looking out for their cash flow. It’s incumbent on you to make sure they aren’t using your company’s leniency to keep them afloat.
During a crisis, your company should have an “all hands-on deck” approach to the collection of receivables.
If you want to avoid collection issues, follow these three steps:
• Do more due diligence on prospective customers before extending credit
• Stay connected to customers so you know how they are doing
• Enforce strict collection guidelines by any legal means necessary
5. Re-evaluate Inventory Strategy
In a crisis, you don’t want to carry more inventory than is absolutely necessary. The cost of carrying too much inventory could destroy your business. A good crisis strategy for inventory is adopting a “just in time” approach to having what your customers need. You might encounter slightly higher delivery costs, but you will more than compensate for that by not carry inventory. This is a must-use strategy if your inventory is subject to spoilage.
6. Create a Crisis Management Plan
Under normal circumstances, you can use whatever business strategies have been fruitful in the past. In a crisis, you have to have flexible cash flow strategies. You should have such strategies in place for immediate implementation when the business environment turns unfavorable. Planning for the unexpected has saved a lot of businesses during the pandemic.
We hope you found this information useful. From developing crisis management strategies to hiring a financial advisor, now is the time to start protecting your company from future issues.
Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.
The views and opinions expressed herein are those of the author and do not necessarily represent the views or opinions of Assante Capital Management Ltd. and its affiliated companies.