Having trouble managing cash flow during COVID-19? 

This pandemic is pressuring small business owners to gauge their cash flow and make difficult decisions. Border closures and lockdowns are causing supply chain and distribution delays and changing purchasing behaviours. This may affect how quickly your business collects payments from customers and suppliers. With so much uncertainty about the future and ever-evolving challenges, reacting quickly is more important than ever. So, how do you find liquidity, manage cash flow and stay afloat during these crazy times?

Here are six solid strategies for managing cash flow during COVID-19:

  1. Health check assessment
  2. Create a budget
  3. Collect your A/R
  4. Reset sales targets
  5. Time is money
  6. Accessing financing options

Give your business a ‘health check’ assessment

Focus on your cash-to-cash conversion cycle. Check your cash inflow “accounts receivable” to see what money clients owe you for services/products they have already bought. Check your cash outflow “accounts payable” to see what money you owe suppliers. Check inventory if you have one. It’s a smart move right now to focus on your balance sheet and not just your income statement. It’s more important than ever to apply a coordinated approach that addresses all three elements of your supply chain working capital: payables, receivables, and inventory.

You can extend your accounts payable and maximize your cash flow by leasing. If you purchase any equipment from a supplier, ask about your payment options. They may allow you to slowly make small payments over a period of time. Learn more about the pros and cons of leasing vs buying equipment.

Identify your vulnerabilities and any potential problems. Do various scenario assessments, both short and long-term forecasts. You will be better able to anticipate when to adapt payment schedules, prioritize specific services/products, find new revenue streams, change processes, and to determine if you need to apply for emergency business financing.

Create a budget

A realistic budget includes necessary expenses consisting of overhead, wages (including yours), benefits (also including yours), taxes, and marketing. 

Marketing? Yes, because good messaging and creative are that much more important. The last thing you want to do is appear clueless by going with (pre-scheduled and forgotten) promotional email messages with a (now) tone-deaf subject line. Adjust your communication approach, but don’t abandon it. Many studies, going back almost 100 years show the advantages of keeping marketing and ad budgets during a weak economy. The companies that kept it going increased sales during the recession and afterwards. Strike that balance between staying top-of-mind without seeming to take advantage of a global health crisis. 

Keep in mind that you should never budget your business based on your bank balance! Once you have a solid and realistic budget, separate your funds into different accounts for specific purposes. It makes it so much easier to track cash flow. Ideally, you would have one account for expenses, one for taxes, and one for emergencies. 

In normal times, we tell clients that they should prepare for an emergency (worldwide pandemic?) because so much can change, so quickly. We’ve always suggested saving at least 10% of your income by paying a savings account first. Saving money should be a priority in your bookkeeping rather than an “if” and….you can probably see why now.

Your expense account is where the majority of your funds should be to cover your everyday business expenses. For your tax account, your accountant should be able to give you estimates in advance for how much you should expect to pay. If your company is incorporated, your tax filing date has been extended until June 1, 2020. The deadline for payments, for both the self-employed and corporations, has been extended to September 1, 2020. Penalties and interest will not be charged if payments are made by then.

Collect those payments

During this time of crisis, renegotiate terms however you can to have clients to pay promptly. Ask for early or upfront payment. Set up e-transfer or credit card options so they can pay immediately. Issue all invoices quickly. We’re a big fan of QuickBooks mobile invoicing, which is a quick and easy way for business owners to get paid right away. Their mobile app integrates well with third-party apps, including PayPal. If you have a good relationship with a client, they may be willing to pay in advance for your services or products. Learn about modern accounts receivable management strategies that can be implemented that improve the average days to pay.  One of our favourite tools to help with collections is Invoice Sherpa, which works well with QuickBooks. It will track, organize and help manage your business finances. Your company’s financial position will be strengthened as it basically ensures clients pay their invoices and prevents overdue payment or non-payment. 

Re-set sales targets

What is your break-even point? At your break-even point, you’ve covered all your costs and are not at a deficit nor a profit. Your sales targets should be to either break even (for now) or, ideally, to gain a profit. To achieve a profit, you want your total sales to exceed your total costs. Price your services or products appropriately to meet your sales targets.

Gross Margin = Sales – Costs of Goods Sold 

Capacity is also an important factor in your sales targets. If you’re not sure how to price your services/products, try to test your capacity to find out the minimum number of sales you need to cover your costs or achieve your break-even point. Taking capacity into consideration is a bit more complicated, but quite valuable. You can calculate how much you need to sell at a certain price to break even or you can calculate how much you should charge at a certain quantity to break even. Remember to take into consideration fixed costs as well. 

Profit = (Quantity x Price)Sales – (Quantity x Price)Variable Costs – Fixed Costs 

If your sales aren’t enough to cover your costs, find ways to increase your business’ value or upscale your services. Increase your rates, scale back expenses, create more attractive packages, or consider partnerships. Find out what the needs of your clients are and satisfy them. 

Time is Money

When times get tough, many business owners spend far too much time in “do-it-myself” mode. It may seem right to close ranks and save money by doing it all yourself. But, that’s time you could be spending serving your clients and growing your business. In most cases, it’s probably cheaper for you to hire an expert than it is to struggle through it yourself. This goes with any professional, not just accounting.

Access financing options

As part of Canada’s Economic Action Plan and to improve access to financing for Canadian businesses during the COVID-19 related economic uncertainty, the Government of Canada launched the Business Credit Availability Program (BCAP). The BCAP supports access to financing for Canadian businesses through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC). This program is providing more than $65 billion in direct lending and other types of financial support at market rates to businesses with reasonable business models whose access to financing would otherwise be blocked. 

Here are the options for accessing credit:

Canada Emergency Business Account

CEBA gives a $40,000 interest-free loan with up to $10,000 eligible for complete forgiveness if $30,000 is fully repaid on or before December 31, 2022.  If your total employment income paid in the 2019 calendar year was between $20,000 and $1,500,000, you’re probably eligible. Learn more about CEBA.

EDC’s Business Credit Availability Program Guarantee

EDC will work with your financial institution to guarantee a new loan or line of credit for 80% of its value to allow you to deal with payroll and operating cost issues. Available to non-exporting companies. Learn more about EDC’s BCAP Guarantee.

BDC Co-lending Program

BDC partners with your financial institutions to co-lend term loans for your operational cash flow requirements, 80% provided by BDC, 20% by the financial institution. This option is available until September 30, 2020. Learn more about BDC’s Co-lending Program, and see a chart comparison to the EDC’s BCAP Guarantee.

BDC Small Business Loan

Businesses can access up to $100,000, postpone capital payments for the first six months and repay the loan over five years. Reduced rates on new eligible loans are now available. You’re probably eligible if you’ve been generating revenues for at least two years and have a good credit history. Learn more about the BDC Small Business Loan.

Invoice Financing

If you’re looking for a short-term (usually 90 day) loan which is borrowed against outstanding invoices, this might be the option for you. Your business would receive a next-day cash advance for receivables (invoices) that clients are due to pay. Learn more about this way of financing cash flow, which includes Velocity Invoice Financing, a Canadian working capital solution.

This public health emergency will continue to present unique and evolving challenges that require quick thinking and modified action plans. Give your business a health check, make a  realistic budget, re-set sales targets, remember time is money, collect payments with data-driven AI metrics, and access financing if you need it. These six solid strategies should help. If you have more questions about managing cash flow during COVID-19, contact us.