Every successful business owner has learned that NOT having a laser focus on their top and bottom line can make or break a business. Today, as we navigate through a very uncertain and disruptive COVID environment, business owners may need to shift their focus from the P&L to the balance sheet to ensure economic survival.
In a COVID or post-COVID environment, conserving cash is the key to survival. Business owners must focus on how to keep their business operational while lowering their break-even as quickly as possible to minimize any net operating loss. The mission may seem overwhelming, but a comprehensive approach can produce dramatic results. Both fixed and variable costs need to be addressed as well as all cash outflows, but you will achieve immediate results by first focusing on variable expenses. Starting with all non-essential or discretionary expenses such as travel, entertainment, hiring, raises, over-time, etc. Review vacation and time-off policies, offer voluntary layoffs or reduced working hours, take a fresh look at exactly what work needs to be completed and how best to distribute that work to your current staff.
Cautiously slow down payments to your suppliers. This may put stress on your supplier relationships, but it is a fact of business life. You can also investigate alternative suppliers in search of new business opportunities that are offering better prices or terms. Lengthening the time of vendor payments will also preserve cash.
If you’ve exhausted your options for slowing down payments, speed up collections of accounts receivable in any way possible. If you have open accounts receivable, hit the phones, make deals, and get paid! Money is more valuable in the bank than on the balance sheet. Depending on the type of business, consider electronic payment solutions or factoring as an alternative to speeding up payments.
Start thinking out of the box. Are there underutilized assets that can be sold or leased-back? Inventory that can be utilized or sold? Is outsourcing an opportunity to preserve cash? Can you identify new or alternative revenue opportunities? This moment demands that all aspects of the business be on the table and open to consideration.
Cash flow is critical to the success of any business, so performing a good forecast is essential, and if not effectively managed, it can start driving your operations and business decisions.
In short, cash flow forecasting is, hands down, one of the most important things your business should be doing no matter the economic climate. A 13-week cash forecast will help you better manage cash, anticipate, and mitigate problems and allow time for corrective action.
While it’s easy to see the importance of an accurate 13-week cash-flow forecast, it can be difficult to execute one. Experts with The Florida CFO Group are happy to help you design plans to elevate your business.