By Jess Coles, Director, Emerson Nash.


This past month since the pandemic has hit our shores our world as we know it has been turned upside down.  As with all ‘black swan’ events the impact on our economy has taken a huge hit – people are staying home, not spending and ultimately many small businesses have stalled. Whilst we’re still knee-deep in this crisis, we need to find a way not only to survive, but to emerge fitter and more flexible than before.  That points us to cash flow management, which in times of  crisis is vital for business survival.

Improving cash flow should be top of your list of priorities if you’re a small business, so we’ve provided here the top five critical actions small businesses should take.   Further, we’ve provided a checklist of a further eight suggestions which should be a strong consideration for you to implement if you have not already done so. Most of these are within your control, and straightforward to deploy.

A lot of these suggestions may seem obvious to many of you. We want to emphasise the importance of acting quickly and implementing the actions you take well.

Run your cashflow forecast NOW – ideally it is good to run a cashflow forecast every month. Businesses fail when they run out of money. When problems hit is the time to go into more detail. Act quickly. Run a cashflow forecast with daily or weekly cash inflows to and outflows from your business. The reason you run your cashflow forecasts is to create forward visibility of your likely cash balances. This gives you time to overcome potential problems. Just think how long it takes to get a bank loan – usually months. Make sure you have a good estimate of your cash position for the next six months. You then have time to plan and take action.

Centrally control all spend within the business. Make sure your suppliers only take orders from your central team. Make good use of your Purchase Order (PO) system. If you don’t have one, don’t worry, there is a lot you can by issuing sequential numbers to your suppliers and tracking everything on Microsoft Excel. The key is to communicate with suppliers, in advance and often, that you will not pay any invoices without a valid PO number. Then send back any invoices you receive without a valid PO number and do not pay them.

Focus on credit control to make sure that you get as much money in as possible as quickly from the customers that owe you money. It is important to pick up the phone to build and maintain good relationships. Be nice, be professional and be very persistent. Always ask: (1) Has the invoice been authorised? (2) Is the invoice in a payment run? (3) What date is the payment run? Remember, pick up the phone and be persistent.

Delay payments to suppliers to stop funds leaving your business. This is quick to implement. Make sure that you communicate a lot with your suppliers. Pick up the phone and tell them what you are doing and why. This will reduce the chasing you receive and increase their confidence.

Reduce your staffing costs which is a large expense in nearly every business. Ideas of how to do this without losing your valuable staff members when the recovery comes, include:

  • Stop hiring
  • Temporarily reduce everyone’s salary by x%
  • Temporarily reduce everyone’s working hours, say from 5 days to 3 days
  • Offer unpaid leave to those who would benefit
  • Finally make staff redundant

Summary

Ultimately acting quickly in a crisis and implementing as many measures as you can until your cashflow shows you surviving, is a critical first step. If you do nothing else, run your cashflow forecast!

Here are some other suggestions that will contribute to improved cashflow:

  • Reduce the ability of employees to spend money on the company’s behalf e.g. credit cards, fuel cards and similar
  • Reduce employee spending authority levels.
  • Get your invoices right first time.
  • Deal with any invoice queries quickly.
  • Sell as much stock as possible above the cash cost of buying it
  • Apply for all government help you can
  • Speak to your bank.
  • Speak to current investors

How an SME responds in times of crisis can be the factor that determines its success or failure, acting quickly and improving cashflow should be top of mind.

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