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Your Business’ Rapid Response to COVID-19 Part 3: Cash Flow

Your Business’ Rapid Response to COVID-19 Part 3: Cash Flow

In Part 1 of our blog series on responding to the COVID-19 crisis, we discussed government programs and resources that are available to your business. In Part 2, we focused on the heart and soul of every business — employees. 

Part 3 examines cash flow and what you can do to protect your cash with proper planning.

The old saying “cash is king” has never been truer than today. Right now, conserving cash should be one of the top goals for virtually all businesses.

Cash Flow Planning

Now is an excellent time to create a new cash flow model that focuses on your current and expected circumstances. We encourage you to consider the following:

  • Make your plan in weekly intervals
  • Include several scenarios
  • Plan now for the future phases. As stressed as cash will be, assume it will get even tighter in the ramp up and recovery phases.
  • Know and manage to your cash break-even point
  • Financial statements and forecasts are still important and should be regularly updated and reviewed

 
Conserving Your Cash

Now is the time to use as little cash as possible. You can always spend it later.

Tips for cash conservation:

  • Stretch vendor payments
  • Turn off auto payments from your bank accounts and credit cards, evaluate each expense and determine which you need to keep and which you can do without
  • Stop inbound “draw” ACH (not including tax and payroll)
  • Implement Positive Pay, an automated fraud detection tool
  • Offer discounts for immediate payments of current balances
  • Pay the minimums on credit card payments
  • Keep track of the “deferred” amounts to incorporate in your longer-term planning

 
Using Your Line of Credit (LOC)

Before tapping into or further using your line of credit, consider the following factors:

  • What are the potential effects of using your borrowing base line of credit? This type of credit is good when times are easy but can cause problems when times are hard.
  • The base of your LOC may contract significantly without new accounts receivable. Older AR, which is not likely to be paid soon, could sharply diminish your balance. Get in front of your bank immediately for temporary relief. Talk to your banker about options for a temporary fix.
  • If your customer payments are going to a bank via a lock box, this could create an extreme effect on your liquidity and hamper both your current and recovery phases. This is another instance where contacting your bank ASAP and working with them for a modification of terms may be your best option.
  • When working with your bank, have a reasonably detailed projection ready to present and ask for a modification that is in line with your forecasts and revised plans.
  • The above points also apply to factoring arrangements.

 
WE ARE ALL IN THIS TOGETHER

PBO Advisory Group’s COVID-19 Resources Center has links to various programs and current information to help you navigate through these trying times. PBO Advisory Group is here to help you and your business. Please contact us with any questions you may have.

OUR NEXT BLOG POST

We will soon be blogging about special considerations for nonprofits during the COVID-19 crisis, your financial communications with various parties and planning for your recovery.