Small businesses caught the brunt of the coronavirus pandemic. For many, there was a slow decline in traffic, and demand dropped off. Many a “non-essential” small business found themselves shutting their doors to help alleviate the spread of the Coronavirus. Others remained open but were operating at a greatly reduced capacity.
Why Cash Flow Matters to a Small Business
Reducing the hours of operation or shutting down even for short periods of time greatly impacts cash flow for a small business. Most experts predict the crisis will be short-lived, hopefully just a few months more before we see an increase in economic activity and demand. But what steps can be taken right now during the middle of a crisis to conserve cash?
You will want to do everything possible to maintain or improve your business’s cash position. The long-term success of your business relies on being about to conserve your cash flow. Running into problems with cash flow can mean you don’t have the working capital needed to pay your bills, meet payroll, suppliers, and other operating expenses. A lack of good cash flow often negatively impacts your flexibility when making decisions that could improve your business’s long-term health. A consistent cash flow is essential for choosing to invest in the addition of new products, or the development of a new product or service. It can influence your ability to obtain financing if needed. When you look at these types of risks, it’s important to be mindful of your cash flow whether there is a crisis or not.
Three Ways a Small Business Can Save Money Fast
1. Talk to your financial institution or bank
Financial institutions of all sizes have been sympathetic to the struggle current business owners are experiencing. Most believe the crisis is not going to last for years, but that we’ll move past it in a few months. The economy should begin to bounce back. Now is a good time to examine your lines of credit and to ask for increased credit if necessary. Deferrals and extensions may be in order. They can offer a little break during the crisis and help carry you through. Capital is readily available, unlike the recession we endured in 2009. Take some time while you have it to reevaluate all of your credit and financing resources. Keep your options open and try to keep from spending. However, if you do need help to weather the crisis, there are numerous options like low-interest loans and a tax credit that can help.
2. Talk to Customers and Vendors
If you deal with larger vendors who have the capacity to absorb slow-downs, ask for payment extensions. Big companies are often understanding of the challenges small businesses face and they are willing to help. Stepping up procedures on the customer end can help get invoices out and resources back quickly. You may consider offering discounts to customers who pay early. Another option is pushing for payment via credit cards. It can cost you a bit more, but it will get cash back in the bank, which can be extremely useful during a crisis.
3. Time for a Financial Review
Your general ledger is like the diary of your business. It shows you every transaction. It’s easy to relax when business is moving. A crisis is not the time to be careless. Take a look at every account. Cancel all recurring charges and services that are not absolutely necessary. Look at where you are spending money. Some projects and contractors may have to be put on hold. They can resume once the economy bounces back to normal. In the meantime, keeping a strict hand on your cash flow can help preserve you for the long haul.
Preserving your cash flow is one of the wisest and efficient things you can do in the midst of a financial crisis. Your cash is an indicator of how well you can weather unexpected events. Can you make it through a huge drop in revenue or sales? Is your business sustainable if you have to slow down or close down for a short time? The more cash you have on hand, the more resilient and flexible your business will be. There are a lot of ways to improve cash flow. You’ll have to take a little time to explore all your possible options.