Mitigating cash flow loss through crisis
By ATB Financial 24 April 2020 4 min read
As small businesses seek to adapt to the current health pandemic and economic downturn, having a clear understanding of their cash flow has become the top business priority. It ensures they are able to sustain their business while preparing for a “new normal.”
For many businesses, revenue streams look nothing like they did two months ago. Focus has shifted from maximizing profits to minimizing loss. And for many small businesses, decisions have an impact not only on business finances, but personal finances as well. Business sustainment can take many forms, including creation of new revenue streams, aggressively managing expenses, or a combination of the two. Meghan Dear, one of the ATB X Managers on the Business Everyday Advice Team, which creates entrepreneur-led programming for small businesses in Alberta, says the key factor for Alberta’s small businesses will be to act now.
Pivoting your approach to cash flow
“About a month ago, a lot of entrepreneurs froze and weren’t sure what to do. The ones that actually acted fast and started making some critical changes were able to get ahead of some of the risks in ways others weren’t,” says Dear.
“If a company hasn’t taken certain actions yet, then it’s time to make some of those hard decisions.”
“You can’t necessarily rely on the old way of connecting with customers. Your old sales models. Everything needs to adjust for this new umbrella of problems that has landed on your lap,” she says.
Slowing cash flow out
Here are a few tips MacGregor and Dear have for effectively mitigating cash flow going out:
- Identify costs that can be reduced or eliminated (for example, reduce or cut WiFi at the business, advertising or other administrative expenses).
- When possible, reschedule longer payment periods for outstanding expenses.
- Head to the negotiation table with vendors and partners,while keeping in mind that many of them are experiencing the same challenges you are.
- Promote inflow by offering cash discounts to clients or customers who prepay or pay quickly (often applicable to B2B).
- Explore “in-kind” arrangements with vendors and service providers to offset expenses.
- Where helpful, take advantage of relief programs, including those from the Canadian government, other organizations and ATB.
Bringing overhead costs to a minimum
MacGregor and Dear say businesses should also look at reducing their overhead if they can and take action now instead of later. Consider:
- Investigating ways to reduce, defer or eliminate rent, lease or mortgage costs.
Shutting off or pausing utilities where you can. Look for inactive mobile or internet accounts, software licences that are not needed and other subscriptions that can be paused.
- Calling your insurance company if your company is non-operational or if employee work locations have changed. Many insurers are offering discounts for low-risk or non-active business activities.
- Deferring your income tax owed to the government until September 1, 2020. The Canadian Revenue Agency (CRA) has also provided an opportunity to defer Government Sales Tax (GST) and the Government of Canada has announced that customs duty payment deadlines for statements of accounts for March, April and May are deferred to June 30, 2020.
- Renting out space, equipment or anything that is not in use.
- Investigating opportunities to restructure financing. Consolidate debt to the lowest interest products possible. When possible, speak with your financial provider or lender to renegotiate debt payments. If you have private lenders, consider ways to reduce your payments or provide alternative rewards for your lender (this might include equity).
- Exploring options like cash calls if you have multiple owners or equity holders in your company.
- Taking on low-risk debt such as the Canada Emergency Business Account.
- Managing staffing costs with every available resource during this time.
- Moving your inventory in different ways, especially if that inventory is perishable.
Getting inventive with revenue inflow
Many Alberta businesses today are finding new ways to generate revenue in addition to managing costs. Clothing companies are designing and producing face masks, for example. Breweries and distilleries are manufacturing hand sanitizers. Restaurants are focusing on delivery and takeout orders. Retailers are offering gift cards or selling online. Companies are looking at their capabilities and resources, finding new ways to serve their customers and generate revenue.
“Those are examples of mitigating loss by repurposing your equipment to produce other things. You can also accomplish loss mitigation through looking at your current clients and finding ways to hold onto them. How can you continue to deliver the service that they had in the past by using technology, for example? If you’re a coach or counsellor, instead of meeting people in person, you’re facilitating online meetings. Think about how you can maintain current customer relationships,” adds MacGregor.
"And maybe your customer needs are changing as well. So how, with your skill set, can you continue to service your customers’ needs? You’re operating within the realm of your skills and industry as opposed to the strict channels that you’re used to."
When it comes to entrepreneurship, in order to survive, there is no time like the present to find better margins.The good news is, maybe some of those shifts will lead to long-term benefits, not just from a revenue perspective, but by proving to both your customer or client base, and yourself, that you have the agility and resilience it takes to navigate disruption.