Covid-19 took the world by surprise, leaving businesses unprepared for the challenges ahead. In these uncertain times, cash flow becomes super important and companies need to develop a cash management plan as part of their business risk and continuity strategy.

Cash Preservation

Cash is king and businesses can preserve cash in the following ways:

  • Supply Chain Risk
    • Communication with buyers / suppliers is critical to understand supply chain risks.
    • Negotiate payment plans with suppliers and establish a fair agreement that works.
  • Financing
    • Don’t assume previous financing options are still applicable. Actively engage with your financial partners and assess lines of credit available to you.
    • SME Guarantee Scheme – understand more about this from your Bank.
  • Rent
  • Reduce Variable Costs
    • Hold off on non-essential purchases or costs that are not revenue generating.
    • Review overheads such as advertising and consumables; restrict discretionary spend like entertainment or training; and review labour costs.
  • Take Advantage of Government Support such as JobKeeper payment scheme.

Cash Management

Businesses should conduct a review of the existing structure in order to ensure minimal wastage and maximum efficiency. Focus on the following:

  • Inventory Management
    • Inventory safety stock parameters will need to be updated; you may consider securing additional stock as buffer against prolonged supply chain disruptions.
    • Consider reducing finished goods inventories, especially in perishable products.
    • Businesses must balance demand for buffer inventory vs. cash flow.
  • Manage Receivables
    • Customers may delay payments or negotiate payment plans.
    • Improve your collection process – focus on customer-specific payment performance and identify changing payment practices to plan for disruptions.
    • Practice timely and accurate invoicing. Reduce delays at all costs.
  • Internal Audit
    • Pay the right amount for purchases and collect the right amount on sales.
    • Make sure you are taking full advantage of discounts.
    • Put in place long term policies and process improvements to reduce wastage.
  • Convert Fixed to Variable Costs
    • Reduce pressure on the business by converting fixed costs to variable costs such as selling assets and leasing them back.
  • Cash Flow Forecasting
    • Create an up to date cash flow forecast to project cash inflows and cash outflows
    • Forecasts help identify and plan for peaks and troughs in finances
    • Update cash flow forecasts on a weekly or monthly basis. Circumstances are regularly changing and businesses must keep up to date.

Technology

Cash flow forecasting tools such as Float can be used to easily produce a real time view of your numbers with the click of a button. Float can help businesses with a variety of functions:

  • Forecasts – Auto-forecasting option that predicts the future based on historical data or the manual option to be used now to factor in uncertain Covid-19 economic conditions.
  • Reconciliation – Automatic reconciliation with financial tools such as Xero or Quickbooks. It is recommended to update your bank reconciliation weekly, if not every couple of days.
  • Managing invoices and bills – This feature is particularly helpful at the moment, making it easy to keep track of accounts payable and receivable.
  • Creating budgets – Simple modification or creation of budgets. During the current changing economic landscape, users can quickly create and edit budgets.
  • Planning for different scenarios – Create different plans to factor in change in inputs such as government funding, delays in collections or impact due to government regulations.

Although there are a number of different technology solutions to forecast cash flow, we highly recommend the use of Float to help guide you through these challenging times. At ABJ Solutions, we are experts on Float and are happy to help you get started.

Read more about Float at their website here.

Conclusion

Cash flow management needs to be an integral element of a business’s overall risk assessment strategy, especially in the current economic climate. We urge you to evaluate cash flow requirements, plan for various cash flow scenarios and plan accordingly.

Let Us Help

If your business has a turnover of over $1 million, ABJ Solutions is offering a complimentary 30 minute Zoom meeting to help answer questions and model critical decisions with you. Get in touch with us today so that we can help guide you through this challenging time.