How to Manage Your Cash Flow During Covid-19

Introduction

An effective cash flow system is essential to keeping a smooth business operation. It is what keeps every company going. Proper management of a cash flow enables you to pay staff, keep the lights on and gives you the means to provide great business deals for your customers. This, therefore, stresses the need for your business to have just enough cash flowing through every day. 

When incoming cash is halted due to reasons like slow sales, economy downtime or a global pandemic, businesses are typically put in a cash crunch (a situation where you don’t have enough funds to operate normally). With the present global pandemic ravaging the world today and its attendant effect on the economies of most countries in the world, it will not be strange if your business is currently being affected. However, do not panic if you are in this situation. In this article, we have prepared short tips on how best to approach managing your business’ cash-flow through this period. 

 

What is Cash Flow?

In simple terms, Cash Flow means the total amount of money that comes in and goes out of your business. When the amount of money that comes in is more than what goes out, it means you are maintaining positive cash flow. A higher amount of money going out when compared to what comes in means you are maintaining a negative cashflow.

Why It is Important to Maintain a Positive Cash Flow 

To stay afloat, every business is expected to always have positive cashflow. Imagine a situation where your inventory is running low, you need to restock and your supplier can only accept cash due to some reasons beyond its control, or there’s an unusual epileptic power supply and you need to get fuel to power your generator, but the filling station only accept cash because its POS is faulty. In both scenarios, cash is king. Not having enough cash at that moment will affect your business activities for the day or even the days. This is why it is always important to maintain positive cash flow at all times. 

The basic principle of maintaining a positive cashflow is by:

  • Accelerating your cash inflows – reduce the number of credit sales to customers
  • Reducing or delaying cash outflows – insist on making payments to suppliers via electronic means and if possible defer payments that can wait, to a later date, especially when there is not enough
  • Minimizing expenses i.e reduce the amount you pay for operational cost to your business.

To better explain this principle, we have provided some practical tips below. 

 

Managing Your Cashflow during The COVID-19 Pandemic

Create A Cash Flow Plan

The first thing to do is to have a clear understanding of where your business stands financially. Go through all your recent financial statements, accounting dashboard, and retail reports and keep an eye on your cash, inventory, and debts, then project forward taking account of the business’s cash inflows and cash outflows for the coming weeks and month.

 

Cut non-essential spending

Identify your business needs vs wants and cut back on the latter. Expenses like marketing, utilities, and retail management software are examples of what would fall into the “needs” category. On the other hand, things like travel costs, or luxury expenses, etc that classify as “wants” need to be minimized or eliminated, at least for the time being. To do this, you can go through your cash flow statements and identify your expenses over the last few months, then use that to figure out which costs should be cut.

 

Extend suppliers repayment

Get a handle of how much you owe and when payments need to be made. Ask your suppliers if credit payback can be extended for some time, say one month. There is a possibility that they will be willing to assist you in whatever way they can due to the situation at hand, especially if you have established a good rapport with them before this period. An additional grace period for payment will greatly help maintain or improve your cash flow position. 

 

Manage customers’ repayment

As selfish as this may seem, ensuring that all outstanding payments from your customers are collected should be a top priority. While it may be difficult and almost impossible to collect all, efforts should be made to collect as much as possible, and an arrangement for others can be put in place. 

 

Manage stock

Scrutinize your re-ordering process, as tying up cash in stock unnecessarily may have a very negative effect on your short term cash. Evaluate how much of your capital is tied up. If you are sitting on perishable goods, and if you have an e-commerce store, identify the products that have the highest demand and find ways to put them first before your customers.

 

Request financial assistance (if necessary)

If it gets to the point where you do not have the means to stay in business, you should consider the option of seeking financial assistance from financial institutions. Look into financial loans and grants for businesses offered by your bank. If you need an influx of cash, look into loans with a low-interest rate and payback plans. A good place to start from is the CBN Intervention Fund, which has made it possible for SMEs to access up to 25 million Naira in loans at just 5% for a year.

 

Think outside the box

This is the time to take a holistic look at your business and explore innovative ways to maintain your business through the coming months. Engage with your staff, partners, and stakeholders on how to move the company forward. 

 

Cash crunch or not, you should always be on the lookout for ways to free up funds in your business as there are always rough patches from time to time. However, we are confident that the tips above will help you navigate your business through these tough times.

If you are worried about monitoring your business’ cash-flow and you need a solution for the financial, sales and inventory aspect of your business, feel free to shoot the team at POS Shop Ltd an email at pos@posshop-ng.com. We will be happy to assist.

 

The POS Shop Team is prepared for remote working so we will continue to provide our full services to your business at this challenging time.