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Top 10 tips for managing cash flow during uncertain times

Never before has the mantra “cash is king” been so important. In these uncertain times it is vital to closely manage your business’ cash flow to ensure your business comes out the other side in good health.

We know that right now, you are juggling between looking after your teams and keeping your business going. Difficult decisions and trade-offs will need to be made. Below are our top tips to help you ensure that cash flow is managed well, so you can survive the impacts of the pandemic and return to thrive once the worst of this is over.

Read the Top Ten Tips for cash flow management:

  1. Speak with your staff

Your staff is just as concerned about the future as you are. Communicating transparently should mean they are more responsive to a variety of voluntary alternatives which could make this easier for you and your staff. These might be temporarily reduced hours, accelerated holiday schemes or salary cuts and deferments which may avoid or reduce the need for redundancies.

With open lines of communication, you are inviting staff to choose scenarios that are best for them as well. For example, some staff may exhibit a willingness to temporarily move to part-time to spend more time with the family as schools and workplaces are closed.

Temporary part-time working will not be for everyone but taking the time to find out what each team member is prepared to do will help your business. You will be able to examine every option and all staff will feel consulted and part of the solution.

Given the generous support the government has offered, real thought should also be given to how the business could furlough under-utilised employees. However, deciding who to furlough will not necessarily be easy as in small teams, individuals may have unique skills you can’t lose.

Regardless of which strategies you choose, remember, staff are still protected by employment and contractual rights so ensure that legal advice is sought before acting.

  1. Create a 13-week cash flow forecast

All businesses need an accurate rolling 13-week cash flow forecast. This should be kept up to date with the latest available information and will show you all expected receipts and payments over the next 3 months. You can then understand your liquidity position and the levers you can pull to help it improve.

  1. Credit Control is key

You should be in touch with your customers to get firm payment dates for your invoices so that you know when your cash will be coming in. This will inform your 13-week cash flow forecast. You should use this to ensure customers are paying you as promised. This is key so that your cash flow forecast is based on accurate and timely information, rather than just assumptions. Remember to allow time for funds to clear your bank account from when customers say they will pay you.

Some blue-chip customers have early payment schemes that you can access for accelerated payments. These often come with a charge or the requirement to offer a discount, but they are worth investigating.

Make sure that invoicing is still happening as quickly as possible. Have you got a plan in place in case your normal billing process is interrupted by illness? Key to getting the money in, is getting the invoices out, with the correct purchase order details.

Another issue you could face is that customers may not be on top of their invoice approval processes whilst they work from home. Their accounts payable team should be able to flag any issues with you. They should work with your account managers and your customer contacts to ensure that all approvals are in place so that you are getting paid promptly.

  1. Identify your crunch points

Once your bank receipts are accurately forecast add in your expected payments. Start with the regular ones – payroll, payroll taxes, rent, rates, loan repayments, utilities, credit cards and any auto debits. Then pull in your desired accounts payable schedule from your accounting system. This will start to give you a picture of your forecast cash flow. You will see crunch points around large outflows such as rent, loan repayments and payroll. Once you know where your crunch points are, you can start to manage your payments to navigate them.

  1. Review your non-essential expenditure and budgets

All businesses incur both essential and non-essential expenditure. Reducing or stopping any non-essential expenditure is sensible. This could include expenditure on marketing, training and development, capital expenditure, internal projects, new and replacement staff.

While many businesses will only have signed off their 2020 budgets a few months ago, it makes sense to produce a reforecast which takes all the above into account.

  1. Use the help offered by the government

The US Government has announced a number of measures that will help manage your crunch points as part of the CARES Act.

The first of these introduced, was pushing ‘tax-day’ from April 15th back to July 15th – this is an automatic extension, and so no paperwork need be filed. Crucially, the extension allows an additional three months for both filing and payment of taxes.

Next up is the much talked about Payroll Protection Program, or ‘PPP’. This allows small businesses, those with fewer than 500 employees, to access funds amounting to 2.5 your average monthly payroll. The key point is that any of these funds used to pay payroll or qualifying business expenses for a period of eight weeks from the loan date will be forgiven – essentially becoming a grant. Any portion of the loan not ‘forgiven’ is subject to interest at 1% and repayable over two years.

Employers are also able to defer payroll tax payments for the period 27 March 2020 – 31 December 2020. Half of the deferred amount will be due by 31 December 2021, with the remainder due by 31 December 2022. However, any employer who received a PPP loan is NOT eligible for this deferral.

The third most significant Government stimulus designed to help employers, was the expansion of the Emergency Injury Disaster Loan package that was already offered by the SBA. Unlike the PPP scheme, this is a traditional loan – it all will need to be repaid, nothing is forgiven. However, as part of the application, employers can receive a $10,000 grant that is written off. Interest rates on these loans is 3.75%.

  1. Speak to your bank

If the current crisis is affecting your business, do not avoid the issue. Raise your concerns as soon as you can with your bank relationship manager. Being proactive with your bank almost always leads to a better outcome. You may find they are able to help by offering repayment holidays on business loans, relaxed banking covenants and providing short-term financial help.

Sharing your reforecast with them is also sensible. We already know a business that has had its banking covenants waived and others where a short-term loan has been granted to help during the current time, so these conversations are very worthwhile.

  1. Speak to your clients

Not all of your customer base will be affected in the same way.

You need to get an early handle on what work will still be coming in so that you can plan how you will deliver it while staff work from home and possibly while a proportion are ill. Managing clients’ expectations during this time needs better than ever communication and customer management. You will also want to reassure clients that your business is still able to support them.

Any confirmed plans for future work can be fed into your 13-week cash flow forecast.

If some of your customers are in real trouble, you should consider asking them to pay your outstanding invoices before undertaking further work for them, especially if that work is going to require additional costs for you. For other clients in a stronger financial position, you may be able to agree upfront payment for work.

  1. Speak to your landlord

Landlords are willing to talk and may offer you help in terms of agreeing to a period of arrears or a rent holiday. Your landlord will want to maintain their tenants’ business health in the long term. You are far more likely to receive a sympathetic ear if you proactively discuss the position with them instead of waiting for them to chase you for late payments. Some clients have been successful in agreeing to a rent reduction for the period during which they are unable to use their premises.

  1. Speak to your key suppliers

We recommend proactively speaking to suppliers to negotiate extended credit terms, instead of hiding from them. Key suppliers especially, may be willing to grant you longer terms to pay their invoices. All suppliers would rather you agree to a payment date with them rather than simply defaulting on your obligations. As many businesses are in a similar position, it may be that those which communicate best with their suppliers receive the most flexibility. If you are suffering from delayed payments from your customers, you might also want to explain that to your suppliers and that you will pay them when you have received your outstanding payments.

How we can help

The team at Kingston Smith Barlevi can help support you through this difficult time providing handholding, advice and support in implementing these top ten tips.

We also have a full multi-disciplinary team of experienced professionals who can help support your business with all your needs during this very difficult time.

Please contact Gareth Jones or Chris Osborn for more information.