The economy is recovering from the COVID-19 pandemic, but many business owners are still navigating through unprecedented problems left behind in COVID’s wake. With a loss of foot traffic, lack of staff, disruptions in the supply chains, lack of inventory and consumer prices reaching levels not seen in 30 years, business owners must stay on guard to ensure that their businesses remain operating and successful. From protecting your cash flow to communicating with your creditors, implementing a few good practices now may save you and your business from peril later.
Cash flow: One of the biggest reasons businesses fail is diminished cash flow. As a business owner you need to understand where your cash is coming from and how you are spending it. Creating a budget (a 13-week budget is typically recommended) allows you to identify what cash you’re expecting to receive and when, and balance that incoming cash against the amounts you’ll need to spend during the same time period. A budget will also provide you with the opportunity to make proactive adjustments where and when needed.
Accounts receivable: It is always a good idea to have systems in place to manage your accounts receivable. As a business owner, you need to keep a close eye on your receivables and ensure that your customers are paying on time. If a customer slows down in its payments or is making reduced payments, communicate with that customer to determine whether increased collections efforts are needed or if a credit hold or C.O.D. terms are necessary or appropriate. You don’t want to be the creditor with a large outstanding claim when your customer ceases operations or files bankruptcy.
Inventory: Inventory reduces cash while it remains unsold. Businesses should hold only that inventory that is more likely to sell. Review your sales over the past several quarters to determine what inventory turns quickly and what inventory grows stale.
Expenses: Reduce your spending and cut costs as best as you can without reducing the quality of your product or services. In connection with your 13-week budget and the regular review of your inventory (both mentioned above), determine if there is a way to reduce a cost (i.e. using a different vendor or different method of shipping) or eliminate an expense for an item you can do without.
Communication: Communication with your creditors is critical. Whether it be a lender, a landlord or a critical vendor, communicate effectively with your creditors as soon as a potential financial problem presents itself. Your late payments or reduced payments will be better received if your creditor knows (through your communication) that you have a plan to work through the financial concerns, rather than leaving the creditor to wonder why a payment was not made in full or missed in its entirety.
Financing: If you believe that cash flow may present a problem or that you may need financing in the future, start securing financing now, not when you are in a crisis and desperate for funds. Begin collecting and organizing those documents that a lender will require (i.e. tax returns, financial statements) and explore your financing options. And remember, if the economy takes a downturn, it is very likely that lending standards will become more stringent giving you further reason to start thinking about your financing needs now rather than later.
Other: Finally, think about your revenue streams and whether those streams can be diversified so that your business is not reliant upon only a few clients, products or services. Continue to market your business. Make sure that your current customer base knows that you are still operating, that you are continuing to provide quality products and services and that they (the customers) are your number one priority. This will help you retain your existing customers and attract new ones.
While no one measure or set of measures may insulate your business from all financial distress, good practices, such as the ones outlined above, can certainly help your business survive, or even thrive, in the face of a financially challenging time or a downturn in the economy.