Remember, it’s still all about cash flow.
We are living through an unprecedented health and economic crisis, and small businesses, many of which often struggle with cash flow to cover rent and payroll even during the best of times, are especially vulnerable now. As of press time, the Small Business Administration’s $349 billion emergency paycheck protection lending program for small businesses ran out of money, and Congress had yet to map out a way to further enhance the program. Underscoring the gravity of the situation, a recent Goldman Sachs survey of 1,500 small businesses found that 51 percent have enough cash to operate for zero to three months. Here are three suggestions to help build the resilience of your small business during these times.
One: Rationalize your cash flow
Consider your cash flow, both expenses and income, as economic conditions during the pandemic evolve. It’s safe to assume that this pandemic will have lasting consequences. Planning for the future will allow you to stay ahead of potential problems. Start by creating a cash-flow forecast that takes into account the anticipated needs of your company, in the short-, medium-, and long-terms. Ask yourself things like, what do you truly need now? What expenses can be cut and/or extended? What receivables can be accelerated or renegotiated? For example, bringing in $100 now might be better than $101 tomorrow, depending on the circumstances of your small business.
Be sure to think holistically about the answers. For example, if you feel like it’s unlikely that you will lose your office or store, you may consider negotiating with your landlord. Or, if you work with key suppliers who you simply could not do without once your business is operating more normally again, check in with them now to see how they’re faring, and be sensitive to their cash flow needs in the process. This sensitivity and humanity will enhance communications and instill the kind of goodwill that you may need reciprocated one day.
Two: Turn to suppliers for credit, if necessary
If you find your business in need of additional credit, you may want to consider turning to your suppliers as a first source of additional credit. Not only will this most likely be the most affordable option, but since suppliers already have a financial stake in your business continuing to be an ongoing concern, they may be more likely to extend credit with favorable terms and/or be flexible with partial or delayed payments. This by no means implies you should take advantage of your supplier relationships. Suppliers are vulnerable right now as well. Now is the time to join together and foster even stronger relationships with your value chain.
Three: Avoid using personal credit cards for your business needs
Using personal credit cards as a source of business credit may seem like an easy, available solution—and it is—however, doing so can come at extraordinary cost. Many small business owners rely heavily on personal credit cards for a variety of reasons, such as earning points, cash back, or other rewards. But be careful to carry a zero or manageable balance as credit card financing charges can accelerate rapidly, and before you know it, you could be in a much deeper hole.
As we all know, in business cash is king. The COVID-19 pandemic has put a strain on liquidity across the value chain. Those businesses that will be most successful will be the ones who are capable of rationalizing their cash flow in the most efficient and sustainable manner.
