As the COVID-19 pandemic continues to impact our economy, small business owners will need to increase their attention on managing liquidity in the short-term and implementing financial plans to strengthen their business over the next 18 months.
The old saying is that cash is king and now that is more relevant than ever. Here are some cash management and liquidity practices to follow.
- Implement a 13 week cash budget to help understand your working capital needs
- Reduce all non-essential expenses
- Assess how the crisis may impact suppliers (inventory management) and clients (accounts receivable)
- Negotiate with your landlord and lender to gain some flexibility over the next 90 days so that long-term prosperity is more likely
Once you have determined your short-term financial needs, I would suggest you revise your 2020 budget and begin to look at 2021.
- Consider stress testing the remainder of your 2020 budget by reducing revenue by various percentages – be realistic
- Re-consider capital expenditure plans that were being considered
- Discuss revised budgets with your lender and the impact the crisis may have on financial covenants in your loan agreement
- Consider generating cash by selling assets that are not core to your business operations – this may very well include your real estate
- Identify ways to raise capital through new investors and highly subordinate debt
- Finally, consider alternative financing such as asset based lenders who will provide more working capital than a traditional lender
We will get through this health crisis, but the economic crisis it has created may very well be with us for the next 2-3 years. Be pro-active and develop both a short-term and long-term financial plan to help your business get through this storm. Share the plans with your banker and accountant. It is critical to have strong relationships with these advisors at a time like this.