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Surviving a cash flow storm

Written by Noleen

On Apr 14, 2020

With all the panic around us due to the recent lockdown regulations put in place by the South African government to curb the spread of COVID-19, more small business owners are worried about the survival of their businesses and maintaining cash flow.

You may have worked hard to maintain a positive cash flow and saved up for rainy days, but what happens when you face a time these uncertain times and your funds aren’t sufficient to cover all your financial commitments? Taking action can help protect your relationships with suppliers, lenders and other partners—and your business may even emerge stronger.

The best advice you should take into consideration during the lockdown is to firstly keep calm and re-evaluate your strategies. This cannot be stressed enough to help you cope and survive a cash flow storm during a weakening Rand and global pandemic.

Problem-solving usually requires us to always think about the ‘what’ and the ‘how’. Right now, we’ve discovered the what which is the cash flow storm threat and now, let’s get into the ‘how’.

How can small businesses survive cash flow crises in uncertain times?

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Cut costs 

According to the regulations set out for the lockdown, we can only travel for essentials, this can also save you more fuel and costs. It is also key that we also work on postponing planned improvements or upgrades unless they are absolutely necessary. 

You could also try to negotiate lower rates with your phone and other service providers, or downgrade some services to free or lower-cost versions that still provide essential features.

Speed up customer payments

Call customers with outstanding invoices and offer a discount for paying before the due date. Focus on longstanding customers with whom you have good relationships. If any of your customers are struggling to pay overdue balances, allow them to pay in installments, but collect the first one immediately.

Relationship building and adding value to your customers can come a long way when it comes to sustaining your business. Now maybe the best time to start working on mending those client relationships and thinking about creative ways that you can use to add value to your clients with the services/products you provide. 

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Communicate with your lenders

Explain your problem as soon as you realize you’ll be unable to make a loan payment on time. Doing so promptly may give your creditors more room to be flexible than if you let them know at the last minute. Always be upfront and honest with your banker

Be Prepared with Updated Financial Statements

Whether you have internal accounting professionals or you use outsourced bookkeeping services, insist on regularly updated financial statements. The statement of cash flows and the income statement are most important for keeping an eye on how money is moving through your organization.

Though you won’t be able to prevent every cash flow crisis, the more carefully you watch your statements, the more warning you will have to an impending issue. Greater lead time gives you a wider variety of options to manage the situation.

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Sell unneeded assets

Nothing is certain today and we don’t know how long it will take for businesses to get back on track and operate as usual. With that said, it is advisable to consider selling those unused vehicles or equipment and then rent something similar on an as-needed basis. You can also consider equipment leases rather than making major purchases outright.

Look for opportunities to barter

If you have a good relationship with a service provider, ask whether it would let you “pay” with your product or service. 

For example, if you own a graphic design firm, you might offer marketing materials in return for an equivalent amount’s worth of IT services. If you can’t arrange on your own, explore online bartering networks, which often include thousands of companies. Be sure to keep records of these arrangements for tax purposes.

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Find ways to decrease your debts 

Another factor you should be prioritizing during this time is decreasing your long-term debts. These are your home loans, car finance, personal loans or business loans. 

You can do this by cutting expenses and using the extra funds to pay off your debts and liabilities. 

Confronting a cash-flow crisis is challenging, but it can be a good opportunity to fine-tune your processes and identify waste and unnecessary expenses. Finding ways to solve your cash flow problems is not something you can do overnight.

The best thing you can do is to seek professional advice and consultation. Get in touch with me directly should you need advice for managing your cash flow during the lockdown and going forward. Drop me an email on info@cvwab.co.za if you need some advice!

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