How to ensure enough cash flow in business during a pandemic?

You may be perplexed by numerous concepts such as cash flow management's meaning and applications if you are a beginner. The basic definition of cash flow is that you're spending more money than you're bringing in. This could be via paychecks, rent payments, paid marketing campaigns, or other fixed or variable expenses. If your physical store closes or you can't meet customer orders, your incoming cash will drop, and you'll be in a negative cash flow situation during COVID-19.

Many enterprises may, however, emerge unscathed by the ongoing pandemic. This is where budgeting, cash flow management and working capital management will help. A company that would otherwise struggle during this time but carefully budgets may save itself from negative cash flow in the business.

Tips To Ensure Enough Cash Flow In Business During The Pandemic:

COVID-19 has wreaked havoc on the global economy and will do so in the future. Nobody could have predicted how widespread the recession would be on the global economy, even at the start of the crisis. We really don't know how long this will go on as we approach the end of 2021. This forced many businesses to close down. Running out of cash when trying to transition in this extremely unpredictable and competitive market can be disastrous for a company. Here are eight suggestions for boosting your company's cash flow projection during this challenging period:

1. Complete Your Budgeting

Throughout a crisis, burying one's head in the sand - especially one as severe and unpredictable as this one – can be enticing. It is critical, however, that a company creates budgets in order to have a strategy. This necessitates the use of forecasting of cash flow in the business.

Even if the strategy turns out to be far overly optimistic as things unfold, it served as a starting point for what needed to be done. Begin by estimating expected sales for the next few months (or weeks), then move on to estimating expected production demands, expected purchases, and finally, the business's financial requirements.

2. Reduce Your Expenses

Many business theorists believe that so many companies focus on the short-term and do not invest enough in long-term investments to add value to the company. However, in a crisis, the short-term becomes everything.

• Businesses must be able to recognise cash flow management and cost-cutting opportunities. This may mean cutting back on luxuries like business travel or hospitality and other amenities.
• Where a company turns to sale and leaseback – where assets are sold and then leased back – is a less evident field. These may be resolved after the crisis has passed, but the most important thing is that the company survives the crisis.
• Transitioning from historic budgeting to zero-based budgeting entails scrutinising and justifying each item of expenditure until it is allocated. This can take time, but the alternative is to base the new budget on previous periods.
• Historic budgeting can often be easy, but for nearly every company, depending on estimates for income and expenditure from the previous year, or even the very beginning of this year, is obviously unwise.

3. Make Certain There Is Money In The Bank

It can seem easy, but it is prudent to ensure that bank accounts have ample liquidity and that an overdraft facility is accessible. It could be necessary to sell unwanted assets to supplement cash reserves and concentrate on debt management. Invoice any work that has already been done should be invoiced to promote positive cash flow in the business.

4. Maintain A Close Relationship With Consumers And Employers

It is essential to maintain close contact with customers and suppliers during any crisis. This will give you a clearer idea of how the bank balance will look in three months, and it will also allow the company to discuss payment terms and cooperate to share the responsibility of any extra costs if needed.

5. Incentivise Your Clients And Make Them Pay You Promptly

It is often more costly to acquire a net new customer than it is to drive revenue from current or prior customers. It will be more difficult than ever to convert new business in the current market climate, with millions around the world unemployed and reluctant to spend money and many more working from home and seeking distractions.

However, if you're a consumer brand, your current consumers are probably bursting at the seams with unmet demand. You'll likely increase revenue and positive cash flow in business, generate cash, and encourage consumer loyalty if you give the right discount at the right time with convincing "exclusive" marketing. Also, if you sell physical goods, getting rid of some of your inventory might save you money on rent and storage.

6. Plan for a Contingency Fund

Even if the cash flow prediction indicates that the company will not run out of cash, it is always prudent to plan for emergency funding if required. Is there an overdraft in the company? Can it be trusted if that's the case? It's a good idea to double-check with your bank to see if any existing overdrafts are still available. Extending the overdraft to meet the cash flow forecast's most pessimistic estimates would be a good idea.

If suppliers are given credit terms, it must be determined whether this will continue in the future. Almost all firms will be under financial strain and will be looking for ways to improve their cash flow.

7. Seek Government Assistance

The majority of governments have aided corporations financially in some way. Knowing about the drop in national output, governments have enacted a slew of policies aimed at bolstering corporate assistance. On the other hand, a firm will need to be well informed about what is available and file a claim as soon as feasible.

8. Look For New Markets

If consumer numbers have declined as a result of decreasing household budgets or the mandated shutdown of businesses due to lockdown rules, a forward-thinking company could look to expand into new markets. This may be a mix of new customers.

• For instance, those that you acquire from online purchases, customers that you can  reach through home delivery, or customers from various geographical areas.
• It's been said that necessity is the mother of innovation. This has definitely been the case with companies that have repurposed their products to improve their business model. Restaurants also evolved into "take-aways."
• Home deliveries of restaurant-style meals have proven to be a success. Although they may not be as successful, they have provided restaurants with a means of generating revenue, at least during the lockdown/

When faced with a drop in revenue, this type of innovative thinking can be the difference between survival and failure.

Final Thoughts on Managing Cash Flow During a Crisis

Whether or not this is your first experience with an economic downturn, small companies like yours have experienced similar levels of uncertainty before. These measures will make it easier for you to keep track of the money coming in and out of your business. These suggestions should help you make strategic decisions that will help your business thrive through these trying times.

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Also Read:

1) How to Start an Oxygen Cylinder Plant in India?
2) How to Start a Business with Zero Experience & No Contacts?
3) How to do a background check when hiring staff for your business?
4) How to start a food chain business in India?

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FAQs

Q. Will reducing overhead costs be helpful for cash flow management during the pandemic?

Ans. Cutting costs is a tried and true method of reducing negative cash flow in the business. As a general rule, look through your overhead expenses. Try to see if there are any areas where you can save money.

Q. Will invoicing swiftly help me in maintaining a steady cash flow in business?

Ans. Invoicing can make a significant difference in a company's ability to manage cash flow projection. As a result, companies can give invoices to their customers as soon as the work is completed. Producing invoices on time would help minimise the time to receivable, allowing companies to maintain a consistent cash flow.

Q. Should I be customer agnostic in order to maintain positive cash flow projection?

Ans. The pandemic crisis has highly affected the financial system as a whole. It is important to have a good and loyal customer base in such situations. You must show your appreciation for your customers by providing discounts or exclusive deals.

Q. Is inventory management a necessary aspect of maintaining a positive cash flow projection?

Ans. It is important to have a good understanding of inventory in order to predict supply-demand levels and cash flow projection for companies. Review inventory on a regular basis to see what's in demand and what's not. This will aid in inventory planning and the sale of dead stock at a reduced price.

Q. Should I consider alternative lending options if my company is experiencing a cash flow problem?

Ans. Consider invoice discounting as an alternate lending solution if your company is experiencing a cash flow issue. Invoice discounting, a short-term method of generating fast working capital, enables companies to sell their invoices at a reduced rate. This helps them obtain immediate cash flow, aiding in growth and development.