7 Strategies to effectively managing cash flow during a crisis

Managing cash flow during a crisis (e.g. Covid-19) or during a down period, is crticially important to get on top of. In this article and interview we share 7 Strategies & tips to implement to get on top of your cash flow.

We live in unprecedented times, and now understanding your cash flow is pivotal to ensure your business can succeed past this downturn. 

We’re all affected by it and we’re all in this together. 

Now is the time to make better scenario-based decisions. 

As I write this post, being a startup ourselves, we more than understand the levels of uncertainty that we all feel right now and what we will feel like in the months to come. 

However, with any down period or times of struggle, the businesses that ultimately succeed are those that three things: 

  • Understand their finances
  • Do Scenario-based planning
  • Move fast & make changes

In this special post, we were lucky to interview an accountant friend of Cenario, Clayton Wood. 

Clayton Wood is the Managing Director of Business Edge Accountants, an accounting and Business Advisory firm in Albury, NSW. 

We set up an interview with him to ask him the questions and thoughts happening right now due to Covid-19. 

It was a wonderful interview and thoroughly enjoyed it. We will be doing more interviews with Clayton down the track :)

Meet Clayton Wood

“Hi, I'm Clayton Wood from Business Edge Accountants. We're here to empower small business owners to achieve their greatness, however that greatness looks. 

“Our goal is to help them build their business to achieve their why and their purpose. We want to help them deliver the kind of business that sustains their lifestyle and that's what we really want to be about.” 

“Cash flow management is an important part of our strategy to ensure that people have the cash to support not only their business but what they want to get out of their business themselves.” 

Intro to Cash flow management during a Crisis

“At the moment, under the current cash flow crisis, obviously everyone's struggling with levels of uncertainty, losing customers, drawing up less leads, fewer inquiries; and it’s putting lots of financial pressure for everyone.” 

“It is now super critical to understand where you are now, where you hope to be and how to adjust to each scenario as it changes.” 

“Understanding at each point what change you can make that could impact your lifeline of cash to extend that runway is now more important than ever”. 

1. Get on top of your Accounts receivable

“It’s important to have a look at your accounts receivable process.” 

“So we’re talking about who owes you money. What invoices have you got out there? It could be, you know, your process isn't very good. 

“Are you ringing them? Are you sending them automatic reminders? Do you have a payment button on the invoice to make it easy to get paid?” 

“The question is, how are you getting those invoices paid quickly and easily in the time of the cash flow in a crisis?” 

“Right now with the coronavirus heading around, you've really got to think about how long do I want my terms to be on those invoices? “

“Is it okay to have 30 day terms? Do I need to bring that back to seven days or maybe one day? Some places offer 60 days. What does that look like in your business and how can you minimise those day to days? “

“This is important not just now but also ongoing. Review your process and make sure someone is accountable to action your accounts receivable on a regular basis.

2. Be in more control of your Accounts Payable Process

“It's much the same but it's on the flip side. So it's dealing with your suppliers who you are going to pay. 

Have a look at how can you review your supply terms. 

“Ask yourself - can you extend your time to pay? Can you get a discount for paying early? 

“What other things can you do when you're working with suppliers to maximise that cash flow and get access to those discounts and avoid life penalties? 

Really understanding how you can make sure that the stock keeps coming in and the sales recurring. Otherwise if you don’t have any stock, then you won’t have any sales”. 

3. The Inventory Process - Manage your stock without going broke

“How long do you carry your inventory for that keeps the shelves full and the bank count full?” 

“Obviously if there's no stock, there's no sales and hence there's no cash flow. Do you know how long your cash conversion cycle takes to happen from when you sell a stock to the stock comes in to when you get paid?” 

“Is that 10 days, 20 days, 30 days? Understanding your cycle and making sure that you're getting paid faster could increase your cashflow on a more regular basis.”

4. Understand your debt and capital structures

“Maybe your debt and capital structure isn’t great. So going back, especially at the moment is that the banks are doing a lot of different things at the moment with mortgages and small business loans, so reducing their rates, making better terms and so forth”. 

“This is a great opportunity. Just a bare minimum takes five seconds. I'll tell everybody that's got a mortgage. Just ring the bank at least once a year. They will shave a couple of points off every single time. I've never met anyone and said, ‘no they didn't help me’. And you know why? It’s because you'd go to another bank because there's always someone else who will give you a better deal.”

“So ring check, assess your debt capital structure so that you can reduce that debt down. Maybe it's consolidating some debt, maybe it's paying off the higher interest debt.”

“Really assessing which one is the best option to really allow you to get that extra capital or cash in the bank to continue to grow.”

5. Overheads - Are your overheads too high?

“This is one of the easy ones that you should be reviewing on a regular basis. Things like your phone plan, it sounds simple, but you know, just because you've always been with one person doesn't mean you have to stick with them forever.” 

“Assess the market and see if they really giving you the value that you need. As a small business, especially with mobile phones, it’s really all about the service that you're getting delivered. Don't focus so much on the provider, usually, they're all much the same.” 

“Half the time you’re not even locked in contracts. You should be looking at your overheads and see if there is any culling you need to do”. 

“One of the other ones I love is subscriptions. Understanding what your subscriptions are and what you’re actually paying for. You'd be surprised how many people that will pay for Office 365 but then there'll be paying for something else that has similar functionality and not realise it. Only then to find out Office 365 has that feature built in. Why pay for it twice then? Get rid of one and just have the other.” 

6. Do you know your Gross Profit Margin?

“Most businesses should understand what the gross profit percentage is and the industry benchmark.”

“If you don't know it, usually you should be talking to your accountant. At least Google it and check it out. Be sure that you're checking gross profit percentage in your region.”

“So whether it's Australia, America, wherever it is you're operating, understanding what that is, and what and what your variable costs are is important.” 

“If you're not sure what a gross profit margin is, it is the difference between your sales and the cost the main items carrying." 

“A retail shop is a really easy example to understand. If you sell tee shirts for $100 and you buy in for $50, then you cost profit margins 50%”. 

“If you're a service based business, you might be looking at reducing your wait time. Or maybe you've got some wastage on your goods. For example if you keep throwing them away, well that's going to impact on your gross profit margin.” 

“So understanding how you can reduce that shrinkage and maybe even reduce your supply costs on those items which can give you a bit of margin so you can make more profit.”

7. Sales are too low? It’s about pivoting and moving fast

“This one's tough. I mean some, some business owners in this crisis have had their doors completely shut. It’s hard to fathom so many working all their lives to either lose their business or can’t be at the same capacity they used to be”. 

“It's really frustrating because there's not a lot you can do and now it’s just all about understanding your cash flow and your runway and what options you have.” 

“It's been amazing to see so many business owners pivot at the moment and I really encourage all business owners to talk with their family members, their team and other business owners”. 

“With their team especially, more than anyone, who can quickly set up new services, products or offerings”. 

“Obviously food places are doing deliveries, fitness people are doing it all online now, where that was a very niche market for a lot of people.”

“It's now opened up. Everybody's going to do something different. It's just amazing. 

“Unfortunately, a lot of people will get sucked into the discounting problem by just discounting, discounting, discounting. However, that's eating away at your gross profit margins and ultimately eats away at your profit.” 

“If you don't know your numbers, this can really hurt sales level.” 

“Really try and focus on how you can get to that ideal client. Maybe the ideal client's changed so you're gonna have to change your focus of who your ideal client is. Narrow down into that sales position of who you want to target for more sales over time and generate more leads as well.”

Dan Siepen
Co-founder of Cenario

I'm the Co-founder of Cenario :) - Growth Marketer with 6+ years experience. Previously co-founded one of Australia's top coding schools, founded largest growth hackers community & consulted with some of the biggest brands in the world. Maker of various cool projects too :)