Cashflow problems arise when a business has more outgoing expenses than they have profit flying in. This is a common issue when crises like COVID-19 strike the world. In some industries cashflow problems can happen unexpectedly at the best of times as well – like during a random stock market crash.
As a result, it is imperative that resourceful business owners find ways to prepare themselves and act fast when a crisis hits, especially if they own a small retail business that can easily be affected by reduced customers in a crisis situation. These 6 tips are a good place to start.
1. Inspect and Adjust Your Business Plan
The first thing you need to do is evaluate your business plan and make the necessary adjustments to reduce spending and funnel the right amount of funds into each asset and task.
Look at your business’ profit and loss statements, check to see where shortages are found, and know which of your products, services and marketing strategies are the most profitable.
2. Invoice Reminders and Calls
If you have customers ordering from your company on a regular basis, send them invoice reminders or get on the phone and call them if they’re late on their payments. Although it might be uncomfortable, this strategy is good practice at the best of times, and absolutely necessary in a crisis. It can help delay your business’ stats from plummeting too fast.
3. Take an Inventory Check and Cut Down on Orders
A crisis isn’t the time to order new tools and products, and it’s certainly not the time to expand. Get your staff to do a detailed inventory check and cut down on existing and future orders. Production should be slowed down, at least temporarily, while you evaluate what the next move will be.
4. Lines of Credit and Disaster Assistance Loans
It’s always difficult to apply for credit during a crisis, but it’s certainly worth it in some instances. Real estate and other tangible assets can be used as collateral, and for small businesses that shouldn’t be much of a problem.
If you have an existing line of credit, now is the time to draw it down to get the cash you need. Additionally, the SBA provides billions of dollars as loans for small businesses in need. Read up on SBA Economic Injury Disaster Loans, and you might find exactly what your business needs.
5. Draw on Investor Capital (Carefully!)
If you can find an investor with access to cash and tangible assets, they might be persuaded to help your small business stay afloat. Be careful, though, as the capital will not normally come for free, and you’ll find you have to be cautious about who you partner with. The pressure of the crisis should never be used as justification to make poor business decisions.
Keep calm, and find a trustworthy investor.
6. Sell Any Non-Essential Assets
Finally, make sure that any non-essential assets, tools and items that are associated with your business are scheduled to be sold. Sometimes that approach will help you save a lot of money, especially when the assets in question required constant funding to keep.
A good example is the way that some IT companies have dealt with the COVID-19 crisis by providing their employees with better laptops to take home and having fewer (or none) of them show up at the office. By switching to smaller offices and investing in better equipment, some of them were even able to improve on their cashflow over time.