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How to Manage Cash Flow in a Crisis

 6 minute read 


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Managing cash flow is a challenge at the best of times. Now that a global pandemic has shaken up business around the world, new layers of challenges have emerged.

In some cases, income may have diminished or virtually evaporated. But that doesn’t mean there aren’t ways to keep your business afloat. 

For most businesses, this is a time for austerity — or at least prudence. We can all hope that business will return to “normal” but the likelihood of things returning exactly as they once were is unlikely. This is a time to lean on support systems in ways you may haven’t had to before.  

Fact is, the fallout from the COVID-19 pandemic is an emergency. It may not seem as obvious as the aftermath of a fire or earthquake, but this is a time to look in many directions to figure out how your business will survive, not only in the short-term but for the long haul.   

Government funding

In Canada, we are fortunate to have a government system that has provided resources for businesses to apply for in order to keep the economy moving. These programs continue to evolve but for now you can visit the Government of Canada website to learn more about the Canadian Emergency Business Account (CEBA), the Canadian Emergency Wage Subsidy (CEWS) and how the government is reaching out to entrepreneurs, specifically if they are young, women, Indigenous and more.  

These aid programs can greatly help with your cash flow. These aren’t hand outs — this is funding to keep Canada’s economy healthy. Use them wisely.  

Learn more from the Government of Canada website.  

Emergency reserves

If you have emergency reserves, now is the time to use them. This is why you were conscientious to squirrel some money away. Even small amounts can help cover you in the short-term. That being said, use only what you need.

Deferring payments

In many cases, there is some leniency when it comes to deferring payments. This may mean a mortgage, rent, or other contractual commitments you owe. Do some research and speak to any organizations that you have fixed payments with to find out if you are able to pay later. This small bridge can make a big difference in the short-term. 

Keep in mind, deferring these payments doesn’t mean you don’t owe the money you aren’t paying right now. But many credit unions, banks and other lending institutions have offered to defer loan or mortgage payments and, in some cases, car payments or insurance premiums. To find out if and how you may be able to defer your business or commercial payments with us, please contact an advisor.

In moments like these it is easy to see why it is important to maintain good relationships with your suppliers, your team, and the people you do business with. If you owe money to someone you have a good relationship with, chances are better they will be more understanding when you request for an extension on an invoice compared with someone you’ve had clashes with.

Business may be business: but that doesn’t mean good relationships aren’t important.    

Fixed vs variable costs

In business, it is often suggested to push revenue, rather that pinch pennies. But everything is different right now. This is a penny-pinching time. 

Take a look at your fixed and variable costs and find out what is absolutely necessary for your business to operate and what can be put on hold. 

There are certain fixed expenses, like rent, that may be deferred but you still need to keep them on your balance sheet. However, variable expenses that aren’t contributing to revenue growth, like contractors or professional services, discretionary management expenses or part-time employees, you may consider reducing substantially or pausing for the time being.  

When it comes to employees, it may be necessary to lay them off for a short period — no one wants to do this but if it means your business will survive the short-term and you can offer your employees a job when business picks back up it may be in everyone’s best interests to do so.  

Once you understand your direction, be sure to communicate with your employees. Everyone is feeling the crunch and most people will understand if you articulate your plan. Everyone appreciates open, clear communication.    

Non-traditional revenue streams

Your regular sales are down. That’s not a surprise. You are confident that things will return to some semblance of normal at some point — but what do you do until then? Have you considered using the infrastructure you have to create a new kind of revenue stream? It’s time to get creative.

Could the machinery you operate be used to manufacture something else or leased to other companies? Do you know your customers well and understand some of the new challenges they are facing during COVID-19 that you could help solve?  Is your staff willing to work and help create something new? Who knows, you may even find your new revenue stream is worth continuing in the future.   

Using credit wisely 

Rarely is credit looked at as something to lean on — but these are rare times. Get in touch with your credit card company as some have offered deferrals of monthly payments. Just be sure that missing a payment won’t affect your credit score.  

If you are projecting that it will be challenging to pay off credit cards, be sure to consolidate your debts to a lower interest option, like a line of credit. These small changes can make a big difference. 

If you were planning to use your line of credit to finance upgrades, now may not be the time to do so. Leverage the lower interest rate on the line of credit to consolidate your credit cards or other high interest loans. The office renovation may have to wait. 

Many credit cards offer reward programs that can be used strategically at a time like this. It’s common that people never take advantage of their credit card’s reward system. Keep in mind, reward points can often be converted into cash back — our Platinum Business Mastercard is an example of this.

Plan to pay back

Whenever you use credit or defer a payment, it is vitally important to have a plan to pay those back. Now more than ever, keeping track of your bookkeeping is incredibly important. You may find that creditors are being lenient at present — but when things return to normal (whenever that might be!) you will start getting some calls. Be pre-emptive and make sure you know when and how you are going to pay back those you owe.   

Ask for help

There is no denying that this is a challenging time for business. If you are feeling pressure, reach out to trusted professionals such as financial managers, accountants and your business advisor to discuss your business plans.  

We all have an interest in your success. Reach out to an advisor today.