As a typical unexpected crisis, COVID-19 has taken the world by surprise. We are all entering some challenging times ahead. This newly identified virus has now spread to over 200 countries. The pandemic is impacting communities, ecosystems, supply chains and ultimately the global economy. It has been projected that SMEs will suffer the biggest blow.
SMEs are generally financially more fragile and cash strapped given the current market disruptions that have made it difficult to do business. The focus for your business should be on protecting your employees, understanding your business risks and managing cash flow disruptions during this time.
As a business looking to manage cash flow disruptions, it is important to distinguish between the two aspects of cash flows i.e. cash coming in (receipts) and cash going out (payments). Over the next few months, you will need to find and implement strategies that ensure you are minimizing cash outflows and find all opportunities to maximize cash inflows which are likely to be constrained.
Find and implement strategies that ensure you’re minimizing cash outflows and find all opportunities to maximize cash inflows.
In light of these circumstances, below are some of the strategies and best practices that can help you manage cash and ensure business continuity;
1. Review your Expenses
This is the time to be frugal with every shilling. You should place restrictions on non essential expenses to reduce pressure on your cash flows. Begin by reviewing your expenses and creating scenarios of what impact CODIV-19 could have on your business. Select the most likely scenario and act on it, if circumstances remain the same.
2. Focus on the Cash Conversion Cycle
This is not the time to focus on the profitability of the business. While it’s important in the long term, more attention should be placed on reducing the cash conversion cycle by maximizing cash sales, providing incentives for early repayment by your debtors and negotiating longer due dates for payables. If you have any outstanding receivables, you need to be more aggressive; pick up the phone and get your debtors to pay the money they owe you before it’s too late!
3. Re-negotiate Supplier Contracts
Negotiations should focus on delaying payments to suppliers and service providers for as long as possible, without compromising the relationship. It may also be possible to negotiate for lower prices with some suppliers. Remember that these relationships will be key for business recovery once CODIV-19 is contained and everything normalizes.
As you re-negotiate, remember that these relationships will be key for business recovery once CODIV-19 is contained and everything normalizes.
4. Re-negotiate Financing Agreements
Engage with your lenders and investors to negotiate better terms. For lenders, focus on negotiating for lower interest rates or interest waivers, an extended repayment period and deferred repayments. At worst, ensure that any repayments in the next few months are interest only. You can also ask your equity investors or other financing institutions to refinance your debt with more favorable terms.
5. Reconsider Investment Plans
Many businesses had plans to expand and invest in new assets. However, you need to give those plans a second thought. Consider investments that are necessary and relevant in these circumstances and shelve those that are not, until business normalizes.
6. Consider Alternative Revenue Streams
Remember the phrase “survival for the fittest”? Fitness is also about flexibility. During these challenging and uncertain times, you will need to think about how else you can make use of your assets and staff to generate more cash, even if they don’t fit into your original business model. If your delivery vans can no longer deliver your own products, get them to deliver cargo for others at a fee!
While your focus is on survival and continuity, we also encourage you to think of a Business Recovery and Growth Plan for the COVID-19 aftermath.
While your focus is on survival and continuity, we also encourage you to think of a Business Recovery and Growth Plan for the COVID-19 aftermath.
Would you like support developing your own Business Continuity Plan (BCP)? We will help you develop an actionable plan you can immediately operationalise. Email us at: businessessentials@shona.co