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Managing Cash in Crisis

Last updated: Oct. 8, 2021 

Most small business experts agree – cash is king. Having cash in the bank rather than being tied up in inventory or receivables can protect your small business from potential threats. That’s true in the best of circumstances. It’s even more critical during a crisis when the survival of your business may be at stake.

Managing cash is one of the most challenging aspects of running any business. It’s not enough to know what cash is coming in and what’s going out. You also need to have a good idea of when you can expect payments on your receivables (money that is owed to you by customers or other sources of revenue) so that you can plan your payables (what you owe to suppliers, employees, landlords, the government and others).

Unfortunately, receivables coming in and dues dates on payables rarely line up. That’s what causes anxious days and sleepless nights for many small business owners. We provide an overview of how to manage your expenses and revenue so you can speed up receiving the cash owed to you.

Managing Your Expenses

Managing your expenses is always a prudent business decision. In this environment you want to be ruthless with every dollar you spend. Below are a few ideas that may help ensure your cash in the bank doesn’t run out before the bills are paid.

Calculate your expenses and minimum revenue

List every expense you have, what you owe, the amount, and the date it’s due. If it’s a recurring expense, note that too. Highlight the largest expense areas as this creates the largest risk if not paid on time.

Know your financial nut – the revenue required to cover your costs without running a deficit. Understand your total overhead costs assuming you can’t generate any revenue. This will help you calculate the minimum revenue you need each month.

Talk to your creditors and suppliers

Keep your creditors and suppliers informed. Let them know where you’re at, how you’re impacted, and your plans for making payments. Talk to them about the possibility of delayed or deferred payments.

Contact your landlord

Rent is generally one of your most important obligations as a business owner. If you have a bricks and mortar retail location, an office, or production facility for which you pay monthly rent, contact your landlord right away. Landlords will not want to lose you as a tenant so they may be willing to help with some short-term cash flow relief. It’s likely that you’re not the only tenant needing relief. You may be able to negotiate a temporary rent deferral, then go back later to ask for a lease extension.

Look at your current debt levels

If you have loans talk to your bank or credit union. Don’t wait until you’re in trouble before you call them. Keep them informed of the reality and your plans. They may be able to assist with new financing if needed. The federal government is working with lenders, which have announced initiatives to support small businesses. Read our blog about federal government support for small business.

Review payroll

Whether you pay your employees a salary, by the hour and/or commission, you have people counting on you. You may be required to make some tough decisions depending on how much you’re impacted by government mandated lock-downs, business closures, or changes to consumer buying patterns, preferences and behaviours. Your options include temporary layoffs, wage reductions, cutting hours or even permanent layoffs.

The federal, provincial and local governments have moved quickly to help small businesses with a variety of new programs and temporary assistance measures. Make sure you take full advantage of the programs and support available:

Canada Emergency Wage Subsidy – The federal government is providing eligible employers a temporary wage subsidy of up to 75% of the eligible remuneration (the first $58,700 of an employee’s wages which equates to a maximum subsidy for a given employee of $847 per week).

Canada Emergency Response Benefit – If you decide that temporary layoffs or a shut-down are necessary, help your staff by ensuring they apply for this benefit right away. Eligible workers will receive $2,000 per month for up to four months if they lose their income as a result of COVID-19.

Tax deferrals – Federal and provincial governments have extended the deadlines for paying taxes for all businesses. During the deferral period, no penalties or interest will accrue on unpaid balances. Taxes will still be due at the end of the deferral period, but you’ll be able to hang on to that cash for a little longer.

Manage your inventory

If you carry inventory for producing your product, minimize cash outlays during production through just-in-time inventory management. Look at your planned sales for the next few months considering the new business environment. What will your inventory requirements be? How long will your current supplies last? When will you need more? Review typical delivery schedules and extend them by a few days since shipping may be disrupted or delayed. Then order only enough supplies to last to your next forecast.

Manage payables

Don’t pay bills too early. Make sure invoices are paid as close to the due date as possible (but be careful that you don’t miss opportunities for discounts or incur penalties for late payment). If terms are net 30, then make your payment as close to thirty days as possible (allowing for delivery and processing time so that you are not caught with a late payment penalty).

Managing Your Revenue

An equally important but potentially more difficult task will be your ability to maximize revenue. Depending on your business, you may be impacted by mandatory closures or simply by changing consumer spending patterns in a global pandemic. Revenue you were counting on may be delayed or lost altogether.

Stay in touch with your customers

If you’re still open for business, let your customers know how you can offer your product or service. If you had to close, stay in touch with them through email and social media. Prepare plans to win them back when you do reopen.

Get ahead on your collections

If you have customers that owe you money, get on your collections immediately. Chances are they are also impacted by the crisis, whether they’re another business fighting to stay alive or a consumer dealing with job losses or layoffs. They will also be looking at every penny that goes out. Staying in touch and letting them know you’re willing to work with them through the crisis helps both parties immediately and strengthens long-term relationship for the future.

Invoice up front (or use partial invoicing)

Once an order is placed, send the invoice immediately. The sooner the invoice is in your customer’s hands, the sooner it can be processed, and you can be paid. Obviously, you’ll need to deliver the product in a timely manner. If invoicing for the full amount up front is not possible, negotiate a series of payments that align with progress on production of the product sold. For example, a home renovator may bill 1/3 of the total amount to start the job, another 1/3 at midpoint, and 1/3 on final inspection.

Extend discounts for quick payment

Give customers an incentive for making a quick payment. Terms of a 2% discount for payment with 15 days are attractive to other business owners.

Invoice electronically

You may not be able to depend on regular invoicing methods during the crisis: mail delivery, couriers and other direct delivery channels may be disrupted. Invoices delivered to offices may sit for weeks if no one is there to process them. Setting up most of the electronic invoicing platforms available on-line is quick, easy and secure.

Accept electronic payments

Make it easy for customers to send you money digitally by setting up electronic payments – e-transfers through your bank or one of the other electronic payment platforms such as Stripe, Square or Apple Pay. Yes, you’ll pay a fee for the service, but you’ll likely get paid much faster and the money owed to you will be automatically deposited into your bank account. Remember, this will end. Brighter days are ahead. We hope you’re able to incorporate some of our suggestions on managing revenue and expenses to help your business during this trying time.

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.