How Can Small Businesses Reduce the Impact Of Coronavirus On Their Cash Flow
The lack of effective cash flow management means businesses being unable to pay their suppliers, incapable of meeting their immediate needs, and even going bankrupt
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Small businesses have been severely hit and are struggling to get through the difficulties posed by the coronavirus outbreak. Although the government has taken various measures to provide relief for small businesses facing economic disruption, many are already witnessing a rough impact on their operations and decline in cash flows. Due to the panic among consumers to stock up on essential supplies, many businesses find themselves hurrying to restock. The smaller businesses are, the greater their problems relating to cash flow.
To maintain a stable supply of goods and services, small businesses need to manage their cash flow effectively. They need to maintain liquidity at surplus levels, especially due to the large demand shock caused by panic-buying among consumers. The lack of effective cash flow management means businesses being unable to pay their suppliers, incapable of meeting their immediate needs, and even going bankrupt.
During these uncertain times, predicting cash flow is more important than ever and also more difficult. When you have exhausted all your credit limits through loans and cards, you might have to face the inevitable of closing down your business. Accounting software can help small businesses to efficiently manage their finances and take control of expenses. Moreover, it allows you to stay updated on your stock levels and get better visibility on where your money is going.
Apart from sending invoices to your customers, for effective cash flow management, you need to maintain an accurate record of all the transactions. This allows you to stay updated on how your business is doing in near real-time. Also, maintain a healthy balance when chasing invoices so as not to stifle the incoming of new clients while also not being overly easygoing.
Review your cash flow budgets
Whilst it is common knowledge to have a business and personal expenses separate, many individuals still fail to achieve that. This can prevent you from getting an accurate understanding of your business cash flow down the road. As we are still uncertain about how bigger the economic impact will be due to the slowdown in consumption, businesses should review and adjust their cash flow budgets. It is crucial to explore the scenario wherein there is a significant reduction in revenue and how this will impact a business's ability to pay its suppliers and repay loans.
If you are one of those businesses considering to purchase any equipment, re-examine whether such investment is important during this uncertainty or it can wait until the situation improves. You should assess your financing options by directly interacting with your bank to make sure that the existing credit lines will be available in the future. Also, explore new financing options should present options run out.
Businesses should encourage their customers and clients to pay early, and even incentivize them by providing discounts, within capacity. If it is a large amount to pay at one go, you can allow them to make small payments periodically. Small businesses struggling to pay their staff should explore ways to reduce compensation instead of laying off employees. You can also look for savings by cutting down on secondary expenses such as advertising and consumable items. To generate cash, take measures that help you sell slow-moving or perishable goods faster.
When you have taken all the required actions, but still having a hard time due to cash flow concerns, you may need to identify alternative routes to generate revenue. Many businesses are taking up online marketing to target new customers. As governments around the world are introducing stimulus package for small businesses, make sure that you follow up on programs announced by the government.