4 Financial Management Steps to Help Your Business Survive COVID-19 (and Other Periods of Stress)

Financial Management

COVID-19 is impacting business at unprecedented levels. CEOs around the world are wondering, “What will happen next? What do I need to do today to ensure my company survives?”

In this article, we’ll review the four practical steps you should take immediately to protect your business during the coronavirus pandemic. But these steps are not unique to the situation we find ourselves in today. These are steps that you can count on to weather any business storm.

In a nutshell, the key to surviving – and even thriving – during periods of chaos and stress boils down to one simple rule: Protect your cash flow. Keep reading to discover what steps you can take to mitigate the impact of the COVID-19 pandemic.

Step 1: Identify opportunities to qualify for government assistance, loans and lines of credit.

Whether you think you need access to the funds or not, immediately secure any funding that may prove vital to keep your doors open in the months ahead. For example, the Small Business Association has disaster assistance to help some businesses cover rent, service debt, and meet payroll.

Also contact your bank about opening a line of credit if you don’t have one. It’s better to have access to more credit than you need than to be forced to close your business because you don’t have the cash to survive.

Step 2: Do Cashflow Planning.

Surviving tough times boils down to holding onto as much as you can, for as long as you can. You want to slow down and/or reduce how much is leaving your business, while accelerating the flow and amount of money into your business.

Start by looking at your receivables. Your goal is to get paid as quickly as possible. Stay on top of receivables, knowing that some of your customers may find themselves unable to pay on schedule.

Next, review your current operating expenses. Prioritize them by how critical they are to your business operations. Eliminate any expenses that you can do without, and put off any purchases that fall into the “nice to have but not critical” category.

For the remaining expenses, suspend or slow down payment. Your goal is to hold onto your cash as long as possible – without impacting operations, damaging key relationships or hurting your credit. For example, if you normally pay a vendor’s invoice within 7 days, slow down and pay it net 30.

Then move onto your orders. Start with orders you already have in process. Calculate what it will take – at a minimum – to fulfill those orders. You want to minimize the inventory you have on hand, as well as reduce the number of hours and number of people it takes to fulfill orders. Again, your goal is to conserve cash as much as possible.

Then move onto orders that are in your sales pipeline, as well as those that may come in over the next several months. Your goal is to estimate the cost of goods sold, again with the goal of minimizing your inventory and personnel costs.

When estimating these numbers, be conservative. In times of financial stress, including the COVID-19 pandemic, sales cycles often stretch out as prospects become more reluctant to spend.

Step 3: Take stock of your cash reserves and calculate how long your business can survive.

This is where knowing your numbers – specifically, your breakeven – is vital. If you have $5,000 in monthly operating expenses and your gross profit margin is 50 percent, it means that you need to generate $10,000 in monthly revenue to break even.

If you aren’t generating enough revenue to break even, it means you will be dipping into your cash reserves to cover overhead. If you have $20,000 in cash reserves and you’re falling short by $4,000 each month, you have enough cash to survive for 5 months. Start looking for ways to eliminate expenses or postpone payment of those expenses to make your cash last longer.

Keep in mind that if you have access to government assistance to cover your operating expenses, this will reduce your breakeven. If an SBA loan will cover rent, remove the cost of rent from your operating expenses. This buys you more time and helps stretch your cash reserves as far as possible.

Follow these guidelines whether your business is struggling already – or you’re experiencing a boom because of the COVID-19 pandemic. Spend only what you must to fulfill the orders you have in hand. If your team has reached maximum capacity, do not hire additional staff. Instead, pay overtime or hire temporary workers. This will allow you to stay nimble and avoid the pain of laying people off when the boom dies down.

Step 4: Meet with Your Financial Advisor for Strategic Planning.

Finally, sit down with your financial advisor and complete a cash flow forecast for the coming weeks and months. What you know today will change tomorrow. The most important thing you need to know is your cash flow position.

Your business financials are tools that you can – and should – be using to strategically plan how you navigate the COVID-19 crisis. With your advisor’s help, go through your incoming and outgoing cash flow line by line. Identify what expenses you can eliminate without endangering operations. Strategize ways to increase revenue and how quickly you collect payment.

COVID-19 pandemic or not, managing your cash flow is a normal part of managing a successful business. How you manage your cash flow, though, becomes more important in times of stress. Now, more than ever, you need to work closely with your financial advisor to identify what can be done to ensure your company survives and thrives in our new reality.

If you want expert help creating a plan to manage your cash flow and thrive despite the chaos caused by COVID-19 – let’s talk. I can help you analyze your cash flow and identify ways to get – and keep – your company on sound financial footing. Schedule a complimentary, no-obligation, 45-minute Strategies & Solutions Session here.

About the Author:

Marilyn J. Magett is the CEO and Founder of Evolve CFO Services, which provides Chief Financial Officer (CFO) services to growth-focused, women-owned businesses. She helps women business owners who want the clarity, peace of mind, and confidence that comes from knowing and understanding their numbers.  As a result, these business owners are able to maximize profits, expertly manage their money, attract needed funding, and steadily increase their companies’ value. Outside of the office, Marilyn enjoys reading, watching movies, and spending time with family in the two places they call home, San Diego and Jamaica.



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