Managing cash flow during the coronavirus crisis

With the coronavirus pandemic likely to negatively affect nearly all businesses in some way, your focus will no doubt be on how to ensure the business continues to have enough cash to survive. What should you be looking at?

Contingency planning

Cash flow is likely to be the greatest concern for most finance departments over the next few months. What you really need to know is what the biggest risk to your business is if, for any reason, cash begins to stop flowing into it but the demands for payments continue. In that case, what you need is a detailed understanding of what precisely you are spending money on.

If you don’t do it already, make sure you have prepared detailed cash-flow forecasts to cover at least the next six months. This will help you to better understand how much cash you’ll need and for how long.

Review your own financing

In these circumstances, don’t assume you’ll continue to be able to access the financing options you previously had available to you. Actively engage with your bank and other finance providers to ensure your available lines of credit remain open and to explore new or additional options should you require them. Adderley Hill & Co can assist with cash flow finances for your business.

If your cash-flow forecast indicates that you may need additional funding, you could consider the new temporary coronavirus Business Interruption Loan scheme. This will be delivered by the British Business Bank and will be interest free for the first six months. The government will provide lenders with a free guarantee of 80% of each loan which should give lenders more confidence in approving loans to SMEs.

Revisit your variable costs

Reducing your variable costs is often a quicker way to immediately reduce your cash outflows than focusing on your fixed costs. Typical variable cost-reduction measures include imposing travel bans and non-essential meeting restrictions (which you might already have in place as a way to manage employee safety), imposing recruitment freezes and placing restrictions on discretionary spend like entertainment and training events.

Consider whether advertising/hospitality expenditure will really be useful over the next few months. If not, can it be postponed until later in the year?

When labour is a significant cost line in your business, consider avenues that might help reduce spend to avoid getting to a situation where layoffs are required. For example, look for opportunities to reduce contract labour and redistribute work to your permanent workforce. Encourage employees to take available holidays and, if necessary, consider offering voluntary leave without pay.

Extend trade payables but do this with care

One way to improve cash flow is to take longer to pay your suppliers. But don’t unilaterally decide to delay payments as this is likely to damage your supplier relationships and might even deprive them of the cash they need to maintain their supply to you.

Work with your suppliers to establish an agreement that both of you can live with. There might even be situations where you need to accelerate payables for a critical supplier that is on the brink of failure in order to maintain your supplies.

Speak to your landlord now about the possibility of deferring rent payments in the future if required.

The important thing is to make decisions as early as possible. Work with your accountant to see what can be done to maintain that important cash flow and to keep your business operating.