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Maintaining cash flow during times of crisis

Last updated: Oct. 8, 2021 

Originally published April 16, 2020

By Jennifer Friesen

As the world grapples with the ongoing COVID-19 pandemic, people are adjusting to changes in their routines daily – and small business owners are no different.

Maintaining cash flow is particularly difficult when transportation routes are disrupted and customers are staying at home to self-isolate. However,  sustaining a balance of cash flow is more important than ever.

We spoke to two experts to learn their strategies for moving forward during a crisis.

Take advantage of government programs and extensions

The federal and provincial governments have announced a variety of programs and subsidies for small businesses since March 2020.

The Canada Emergency Wage Subsidy offers a 75 per cent wage subsidy to employers who have lost at least 15% of their revenue as a result of COVID-19. Additionally, the federal Work Sharing Program allows businesses to have their employees share work hours in order to avoid layoffs.

“The worst thing a business could do right now is to panic,” says Hussein Warsame, professor and area chair of accounting at the University of Calgary’s Haskayne School of Business. “Everybody is in the same situation … so what I would suggest is to treat the government as your business partner.”

Businesses are also able to delay GST payments until June and income tax payments until August, which Warsame says can give small businesses more flexibility with cash flow to maintain operations.

Hold onto cash reserves for as long as possible

While the government supports are a great resource, many Canadian businesses are struggling, which means it can take valuable time to get resources to you.

Steve Armstrong is a leadership consultant and also teaches resiliency and recovery courses at Mount Royal University, and he warns that even with government help, it can take weeks before you see money in the bank.

“The thing is, cash is king,” says Armstrong. “If you can, I would recommend not spending cash reserves for as long as possible. It’s important to have a cushion you’re in control of so you aren’t relying on lines of credit.”

Communicate early and negotiate with suppliers and consumers

The ability to pay suppliers and the ability to collect from customers are both affected by COVID-19, explains Warsame.

“The normal cash-to-cash cycle has been disrupted in many ways,” he continues. “Just as you might be unable to pay your suppliers, your customers might be unable to pay you.”

By rushing to collect from customers, Warsame says you could lose customers in the end. Additionally, the reality that everyone is experiencing the same economic turmoil, suppliers are likely to be flexible in payments to retain your business.

“Be patient instead of having the kneejerk reaction of firing employees or rushing to collect,” he says. “Negotiate with your customers so they will try to give you account receivables as soon as possible. Negotiate with suppliers to try and delay payments.”

Steven Ibbotson, president and CEO of FBC, says managing cash is one of the most challenging aspects of running any business.

“Revenue coming in and due dates on payables rarely line up,” Ibbotson says. “That can cause anxious days and sleepless nights for many small business owners. When cash is tight, it’s important to plan your payments to suppliers, employees, landlords and the government and others.”

RELATED: Steven Ibbotson provides an overview of how to manage your expenses and revenue so you speed up receiving the cash owed to you.

Think outside of the box

With fewer customers able to physically go to brick-and-mortar storefronts, there are ways to shift into alternate revenue streams as a way to keep supplying value to your customers.

Some distilleries have been using their equipment to make and sell hand sanitizer, and some service-based businesses like yoga or art studios are offering online courses for a fee.

Armstrong says that leaders and owners can sometimes close the door to employees and work on solving complex issues like this alone, but he says that opening up the conversation will actually be more beneficial.

“If you bring people in and discuss the issue, they just might come up with an idea that’s brilliant,” he says. “If you engage in the people around you to solve problems, they’re also more likely to buy into the solution rather than it being a top-down decision they had no say in.”

Looking to the future

While the current struggles are top-of-mind for all business owners right now, both Armstrong and Warsame agree that it’s imperative to keep some thought on how the business will succeed after the crisis.

Warsame says it’s important to not put yourselves at a competitive disadvantage during this time to protect your business in the future. By keeping staff employed now, they’re likely to be more loyal and you don’t have the added cost of hiring them back. If you don’t rush to collect payments, you’re likely to have a more trusting relationship.

“It’s difficult to rebuild trust and reputation,” says Warsame. “Everybody is at a disadvantage right now, but if you damage (your reputation), you’re putting yourself at a competitive disadvantage on top of that.”

Like the beginning of every crisis situation, people and businesses are reacting to things quickly and making reactive decisions. Armstrong says that people need to look to the transition stage and think about what it will look like in six months.

If new revenue streams were introduced, can those still be viable options? If having staff work from home more often worked well, would it be cheaper to continue that way and rent some shared meeting space as needed and cut the costs of a full building?

“When you’re in the trenches, you can’t see anything except what’s directly in front of you,” says Armstrong. “But if you take time to look up over the dirt and see the horizon, you can think of long-term plans for the future and how we can position ourselves differently. How can we put ourselves in the position to, not only survive, but do better than that – because we will recover.”

Contact FBC

These are unprecedented times. The entire world is focused on containing the COVID-19 pandemic and small businesses everywhere are in a fight for survival. As with government and medical efforts to control the virus, speed and agility are essential for effective small business management. You know how important it is to stay updated on information that impacts your business.

It can feel overwhelming to have so much information to navigate and sift through each day. Especially when you are doing everything you can to navigate your business through these perilous waters. While you’re doing your best to weather the storm, it’s good to have someone in your corner. That’s why we’re here. We’ll provide you with the latest information, advice and insights in our COVID-19 Resource Centre.

If you’d like to learn more about how FBC can support your business, call us at 1-800-265-1002 or email Unlimited consultation related to tax matters is a key benefit of FBC Membership. You can also request a consultation online.

Disclaimer: The material above is provided for educational and informational purposes only.