Keeping your cash reserves working for you is the way to survive COVID-19!
Everyone these days keeps asking me for tips to keep their businesses alive during these trying times. And know what, it all boils down to one thing: To keep your business solvent through the COVID-19 pandemic, stay focused on these 3 rules on cash:
1) Cash now is better than cash later.
Decreasing cash flow for many of your customers means you’ll likely have trouble collecting 100% of your accounts receivable in the short term. But don’t overlook clients whose cash flow or revenue has yet to be dramatically affected by the pandemic or who have a big enough emergency fund to pay most of their bills for several months.
What to do now: Be compassionate, but don’t stop your collection efforts. You need as much cash as possible now, not later. You’re likely to have some customers who can still pay your invoices. So, actively communicate with key customers and consider offering slightly better terms to receive payments earlier than normal. Also, look to suppliers to extend payment terms with them. By working together, you can find unlikely partners to help you both through this hardship!
2) More cash is always better than less cash!
It’s important to build your cash reserves now more than ever. While difficult after the pandemic hits your business, it is not impossible. Review every asset on your balance sheet – accounts receivable, prepaid expenses, fixed assets, and inventory. Determine what it would take to convert each of them to cash.
What to do now: Consider leveraging these assets with your bank as a line of credit. Also, talk to your lenders about the possibility to postpone several months of loan payments. Perhaps your bank will accept interest-only payments. Also, ask suppliers to give you discounts for paying on time during the pandemic. Get involved in your bill-paying process and pay bills on time, never early. And think long-term, ideas to build up your cash now will only help later on…
3) Don’t run out of cash.
According to Bloomberg, 82% of small businesses that eventually fail do so because they run out of money. So, it is critical to constantly forecast your business’s worst-case scenario and figure out how much cash you need to keep your doors open. Then, take steps to protect your business before you run out of cash.
What to do now: Start by prioritizing your business’s expenses. Know who you have to pay and who can be delayed. Identify expenses you can cut and in what order they should be cut. Use your forecast as an early warning system to determine when to start these cuts, if you haven’t already done so.
You know these simple yet very effective cash principles are timeless… but the pandemic reminds all businesses that you need to have a sharp focus on your cash position always. By keeping these ideas top of mind, you may just have enough cash to keep your business’ doors open and stay solvent in these very challenging times.