The Importance of Cash Flow Management in a Time of Crisis

Although the U.S. economy is once again opening for business, the impact of the COVID-19 shutdown will have a lingering effect on businesses across virtually all industries. The acute disruption of “business as usual” will continue to make managing your company’s cash flow a top priority. Here are 11 tips for controlling and managing your cash position.

1. Adjust Your Cash Flow Budget – Throw out any projections you may have put together prior to the shutdown. Your cash flow forecast must be reviewed and adjusted on an ongoing basis to determine what impact the reduction on revenue has on your ability to move cash through your business to pay suppliers and creditors, and to service debt. Meet with your CPA to reassess your position, then use regular reports from your accounting software to manage cash flow “on the fly.”
2. Know Your Numbers – Make sure that your financials are up-to-date so that you can monitor profitability, overhead costs, receivables and balances on as close to a real-time basis as possible. You need to be nimble and make rapid decisions, and only a firm grasp of your financial reality will allow you to do that on an informed basis.
3. Manage Your Receivables – Be sure to invoice promptly, as soon as a product or service is delivered. Your customers may be looking for relief on their debts in the form of delays, discounts, or even forgiveness. You should consider discounts as an incentive to encourage them to pay early (or even on time) to keep cash coming in. If you do want to help ease the pressure for customers who may be experiencing their own cash flow problems, consider setting up periodic payments. But get an agreement in writing and make sure the payments are made on time. Follow up on overdue invoices and slow paying customers. Be alert to any contracts or orders that may be cancelled – you’ll need to adjust your cash flow projections.
4. Review Capital Expenditures – Call a halt to all planned capital outlays until they have been reviewed and reevaluated. Certain investments in equipment or infrastructure can be delayed with minimal impact. For example, improvements to your offices should wait until you address the future balance between in-office and at-home work. In other cases, purchasing equipment now may be advantageous if the price has dropped due to the shutdown. But be more conservative about spending.
5. Explore Your Financing Options – Lines of credit and operational funding from traditional sources may need to be renegotiated. Don’t wait for your bank to make the first move. Actively engage with your banker or other finance source to ensure your credit will remain available and to look into new or additional options should they be required later. One example to consider is factoring in order to generate cash flow from your receivables.
6. Cut Overhead – Review your P&L and try to identify savings that can be created by reducing or cutting discretionary overhead like consultants, paid advertising, or office services. If you have avoided furloughs or layoffs so far, try to stretch your payroll dollars by reducing reliance on contract labor by redistributing functions among full-time staff, reducing hours, or encouraging employees to take voluntary unpaid leave. Businesses with fewer than 500 employees that have not already done so can still apply for a Paycheck Protection Program (PPP) loan to help retain workers or bring back laid off or furloughed staff members.
7. Manage Your Inventory – Supply chains have been disrupted and slowed by the shutdown, resulting in inventory shortages and delays in delivery of raw materials and component parts. Look for alternative sources to guard against a prolonged supply chain disruption. At the same time, work to increase sales of slow-moving inventory and perishable stock to help generate more cash.
8. Manage Your Creditors – Just as your customers may ask for your help and patience you may want to do the same to those to whom you owe money. If you foresee a shortfall take steps in advance to contact your creditors to seek payment extensions and cancel non-essential orders (or delay delivery). Work with landlords to negotiate rent reductions or lease negotiations.
9. Look for Alternative Revenue Streams – Restaurants whose dining rooms were shuttered switched over to pick-up and delivery of meals. What else could your business be doing to generate sales and cash flow? What products or services can you deliver online? If income from exports has dried up, can you replace those dollars with domestic sales?
10. Watch Your Tax Obligations – Yes, the tax filing deadline was moved from April 15 to July 15. But don’t count on it shifting any later. Keep up with payroll tax payments, quarterly tax payments, real estate taxes and other obligations. The last thing you need is to pay interest and penalties on a missed tax payment.
11. Take Advantage of Available Support – Between the CARES Act (which includes the PPP loan program) and other federal, state and local stimulus measures, your business may be eligible for some helpful influx of cash. Investigate every opportunity. But, while having cash on hand now is essential, be sure you do not overextend your ability to pay back any loans that do not come with forgiveness provisions. Your CPA can help you assess each program.

Need help in managing your organization’s cash flow? Contact Gray, Gray & Gray at (781) 407-0300 for more information and assistance.