COVID-19

Maintaining cash flow through uncertainty

On a recent, sunny, and non-eventful weekday, a Houston construction crew accidentally hit and broke an essential city water main near downtown. Within an hour, the freeway flooded, nearby neighborhoods began to flood, and businesses all over the fourth largest city in the USA had to close and send employees home due to little or no water pressure. 

Within two hours, the mayor ordered all restaurants closed. The restaurants and businesses remained closed for the next two days. Business owners lost revenue, and many employees lost two days of pay during the closure. Even though the city had no warning, most were fortunate it only lasted a couple of days and were back to business after two days. 

Even though it was only a couple of days, it was their busiest time of the week. No doubt, that disruption in cash flow was extremely painful for many small businesses and their employees. 

Just as you should save and plan for a personal emergency, your company should do the same. You may have an evacuation plan, a contingency strategy for a weather event or earthquake, and maybe even a crisis communication procedure. Do the same for cash flow.  

Here are some things you can start doing now should your cash flow be abruptly slowed or stopped: 

  • Start with the numbers – how much is going out and how much is coming in. Then do the basic math. If you are in the black, good for you. Now, find a way to grow that number. The bigger the cushion, the better your odds of surviving a disruption to cash flow. In the red? You need to start on this today. 
  • Ask employees to contribute to that plan; they are on the front lines after all. Put together a company survey or hold a virtual meeting. Where would they cut, what could they do without, and in a worst-case scenario, who could best afford a furlough? Keeping employees in the dark is not a good leadership practice. The news may not be good, but most will appreciate knowing where the company stands and what they can do to help their future. 
  • Keep your accounting accurate and up to date. Reconcile bank accounts and accounts payable and accounts receivable weekly, if not more. Set time aside, same time each week, to do this. Don’t blow it off, do it, you never know what might happen. Remember that water main break above? 
  • Where does your cash come from, top to bottom, the most to the least? If you lost that top customer or best business day, could you survive? How would you replace that customer or that day’s worth of business? Would they stay with you through a crisis? A disruption in service? These are the customers you want to reach out to and check-in with regularly. Those check-ins will go a long way towards support when you need it. 
  • Where does your cash go, what can you cut from that list? Again, from the most to the least, where are you spending money? What can you do without short term that wouldn’t hurt your business long term? Knowing this well in advance of an emergency means you make better decisions. 
  • Make sure you have contact information for all creditors, vendors, creditors, and bankers. This information should include the name of a direct contact (aka a real person) and their direct phone number if you can. If not, at least have the best phone number you can find, an email address, website logins, and a physical address. You don’t want to be looking for this information in a panic. And having a personal contact goes a long way towards finding a solution or at least an immediate fix for now. 
  • Develop a personal relationship with these people over time, not when the crisis begins. It can be as simple as the occasional “how are you” email. You would be amazed at the power of human contact. 
  • Review and update this cash crisis plan at least once a quarter with your team once you have all this information put together. Circumstances, phone numbers, people, etc. always change. Keep up with those changes during the good times so you can reach out when the need is there. 
  • And, when it’s all over and you have made it through intact on the other side, write a handwritten thank you note to everyone who got you through. That goes a long way towards your survival the next time something happens. That handwritten note may the most powerful tool you have in maintaining a successful future. 

Maintaining cash flow through uncertainty is like learning CPR. You hope you never have to use it, but if you do, you’ll be glad you planned, refreshed your knowledge of the procedure regularly, and knew what to do when the time comes. 

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Business Insights and Ideas does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.