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Cash Flow

Managing Cash Flows During the Coronavirus Crisis

As the COVID-19 pandemic sweeps the nation, small businesses are scrambling to stay solvent.  Many small businesses are continuing to operate but as key customers are required to stay at home sales have declined. Even worse, other small businesses are temporarily closed by government mandate.  The government has indicated that relief is coming through the CARES Act and other programs, but business owners are still scrambling to make payroll as they re-negotiate terms with critical vendors, landlords, and lenders.

Very few small businesses will make it through the pandemic without feeling a significant negative financial impact.  Still, in the words of Chicago Ex-Mayor Rahm Emanuel, “You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”   If your small business is impacted by the COVID-19 pandemic, make it your goal to come out of the pandemic stronger than before.  In order to do this, you should start by asking yourself these two questions: 1) What is my cash balance right now?, and 2) What do I expect my cash balance to be in six months?  If you aren’t able to confidently answer these two questions, it is critical that you take the time to map out expected cash inflows and outflows to forecast your cash flow over the next six months.

Here are some tips from LQD Business Finance to help manage cash flow through the COVID-19 pandemic.

  1. Create a Cash Flow Forecast: Similar to a bank statement that shows historical debits and credits, a cash flow forecast is used to map cash inflows and outflows expected to occur in the future.  Many accounting systems have a cash forecast function built-in, but if yours does not, feel free to use the LQD EZ Cash Flow Tool.
  2. Actively Manage Invoicing: Prior to the pandemic your business may have batched invoices and sent them to customers on a weekly or monthly basis.  Alternatively, invoice the customer as soon as the work is completed.  If you are working on large projects, discuss with your clients if they’d be open to a progress billing schedule.  Finally, make sure your invoicing is clear with the amount owed and the due date clearly defined.
  3. Follow-Up on Aging Invoices: Are any of your customers beyond their allowed credit terms?  Follow-up with these customers consistently.  Maybe before the pandemic, you had more financial cushion and have been less active in pursuing repayment. During a crisis, it is important to actively pursue repayment and get paid quickly.  Have a protocol in place for following-up on customers with past due invoices.
  4. Categorize Expenses: As businesses grow, so do expenses.  As a business owner, forecasting your cash flows don’t stop at projecting expenses, you also need to analyze and potentially eliminate them.  For example, in today’s economy, software-as-a-service and monthly payments have become the norm.  Review not only the cost but also confirm that the software is continuing to adding value.  If it is not, consider canceling.

Managing Cash flow is about planning, analyzing, and awareness.  Creating a very detailed cash forecast is one of the best investments your small business can make towards growing profitably.  Creating the forecast will require you to think about historical performance, and hopefully, give you an improved awareness of your business and your forward-looking plans.


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