CASH FLOW GUIDE FOR THE BUSINESS IMPLICATIONS OF COVID-19

After re-doing your budgets and determining the financial health of your business, including your cash reserves, you are likely to find your business will struggle with cash flow in the near future. You must therefore act now to improve cash flows.

The first step to improving cash flow is to prepare a cash flow forecast and updating that forecast throughout the crisis, possibly weekly. This will give you forewarning of any cash flow problems so you can act early to address them.

STOCK MANAGEMENT

• Take steps to increase sales, especially of stock that may not last three to six months.
• Focus your promotions towards these stock items.
• Reduce stock orders, particularly stock you assume will be in low demand during the crisis.
• Increase purchases of stock you think will be in high demand during the crisis.
• Promote the selling of excess, slow-moving and/or obsolete stock.

DEBTORS MANAGEMENT

• Contact your debtors and ask them to pay you, even if before the due date.
• If your debtors are experiencing cash flow difficulties themselves, negotiate periodic payments and make sure they stick to their side of the deal.
• Invoice as soon as the product or service is delivered … don’t delay.
• Produce aged debtor reports and follow up with aged debtors.
• Reduce debtors by encouraging customers to pay at the point of purchase or to pay early.
• Only pay commission to sales staff when payment is received on their sales.
• Review your sales contracts to determine under what circumstances customers can cancel If necessary, update those contracts to limit the ability of customers to cancel orders.

CREDITORS MANAGEMENT

• Seek payment extensions, even temporarily to your credit terms with suppliers.
• Check your supply contracts to determine under what circumstances you can cancel orders if necessary, or at least delay delivery.
• Negotiate installment plans with the tax authorities.

SPENDING

• Cut spending you believe unnecessary in a crisis, such as advertising.
• Delay unnecessary capital expenditure.
• Look to reduce staff costs by reviewing staffing This could include reducing employee or contractor numbers, reduced working hours or implementing a recruitment freeze. You may need to seek advice as to how to do this.
• Reduce your drawings from the business.

SEEK FINANCE TO FILL CASH SHORTFALLS

• Speak to your lender about introducing or increasing your overdraft Demonstrate that you are on top of your business and understand your cash flow.
• Determine your own personal cash position to see if you can inject cash into your business.
• Seek out other investors to see if they can inject cash into the business.

At FMC, we assist clients by providing solutions to holistic business advisory including budgeting, cash-flow forecast and revision.

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Contact the FMC team at admin@faisalmalikco.com. for the relevant consulting and advisory services.