During our recent webinar, “Managing Cash Flow During Crisis,” I sat down with a panel of Bridgepoint industry experts: Ross Goolsby, Pamela Berger, and David Bizzaro, to talk about how businesses of all sizes can manage cash during a time of crisis. Our conversation gave audiences a chance to take a deep dive into how cash forecasting and key business relationships can help businesses survive the current COVID-19 pandemic and prevail stronger at the end of the crisis.
Here are a few key takeaways from our discussion:
Cash is King
This old and enduring saying is more relevant than ever as businesses brace themselves for the economic impact brought on by the COVID-19 pandemic. Our panelists recommend a 13-week forecast maintained weekly to be used as a tool to manage the current situation.
What key assumptions should be included in a weekly cash forecast?
- Clearly identify your cash inflows and outflows
- Categorize and prioritize expenses by those most critical to the organization to those that can be deferred
- Consider impacts in revenue by categorizing and prioritizing customers from those that have a strong credit and payment history to those that are still new or do not have strong credit and payment history
- Make cash forecasting a cross-functional team effort by incorporating insights and perspectives from teams outside of finance and accounting such as sales and business development
- Perform sensitivity analysis at various levels of cash flow to determine how certain risks will be managed such as debt covenants
Manage Aging Receivables
Focus on collections by prioritizing large balances that can be collected within a relatively short period of time. Clearly communicate with your customers what your needs are and get creative with ways to collect payment.
What types of creative collections methods can your business use?
- Early pay discounts
- Incentives for paying upfront for services or products
- Maintaining strong relationships during a time of crisis will be critical to helping you survive. Be transparent with your customers and work with those that can pay balances sooner.
Government assistance is available
The CARES Act was recently passed into law and offers relief in the form of loans for businesses of different sizes. Acting quickly to take advantage of government assistance can help businesses free up cash flow in the immediate future to continue paying for key operating expenses.
What can your business do to take advantage of the CARES Act?
- If you have the resources, assemble a task force to take the time to understand what types of relief your business may qualify for before you apply for assistance
- Work with an existing lender to help you with the application process.
- Leverage programs like the Paycheck Protection Program to help you keep employees instead of implementing a reduction in force
Communication is key
Being clear, transparent, and consistent about your business position with key stakeholders and business partners will go a long way in helping you manage cash inflows and outflows.
How can communication help manage cash?
- Work with creditors to defer payments when possible
- Talk to your vendors to work out updated payment terms
- Contact customers with outstanding balances to collect payments sooner, when possible
- Talk to your landlord about possibly deferring rent payments
- Communicate with your employees. If your business does have to make a difficult decision such as reducing your workforce, consider approaching the situation with empathy and demonstrate solidarity by encouraging senior leadership teams to take on temporary pay cuts when possible.
Bringing it together
The COVID-19 pandemic brings about a unique crisis in which businesses and business partners are all going through similar struggles at the same time. As we face uncertainty about the future, staying grounded in fundamental business practices and disciplines such as cash forecasting and constant and clear communication will be key to prevailing as a stronger and resilient business.
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