Why is cash flow so important during this pandemic for businesses?
A lot has occurred since the initial rise of the Covid-19 global crisis. But from what we can tell after almost a year of dealing with Covid-related hurdles is that it’s not going anywhere any time soon. And that means you need to adjust your business practices accordingly.
If you haven’t already adjusted your practices to effectively manage your cash flow throughout Covid-19, it’s not too late to start. Many businesses haven’t understood the importance of managing cash flow and many more can’t see the long-term impact this will have on their business operations. However, managing cash flow in the Covid-Era is one of the most crucial measures a business can take to ensure survival throughout the pandemic and after.
There have been countless disruptions to the global supply chain since Covid first hit last February. And, as we know, supply chain disruptions have a huge impact on cash flow within organizations. But what can we do to potentially mitigate the damage to these operations?
Thankfully, we have included a few recommendations below.
Who is at risk?
Quite frankly, we’re all at risk here. With such major and unprecedented disruptions to the global supply chain, almost all businesses dealing in physical products, inventory, and experiences will suffer in some way. Whether it be from inventory delays, low cash reserves, or organizations focused on tourism, hospitality, and entertainment, many of these organizations rely on the supply chain that has now been disrupted.
Commodities are also seeing a huge fluctuation in demand and pricing as the economy remains turbulent and unreliable for most. (Deloitte, 2020)
How to respond and improve cash flow
If your business is one of many that relies on the global supply chain, or even just imports from China, chances are you’ve already been affected. But it’s not too late!
Companies can adopt a number of strategies to improve their cash management and incorporate these strategies into their risk and continuity plans.
Many of these strategies have been adopted from businesses that were impacted during the SARS outbreak of 2003, and the 2008 recession:
- Create a framework for supply chain risk
- Keep your financing viable
- Emphasize cash-to-cash conversions
- Meet with your CFO or hire a CPA to help strategize across the organization
- Examine variable costs
- Examine capital investments
- Revamp your inventory management
- Extend your payables (but don’t overextend)
- Expedite receivables (consider credit risk)
- Examine your supply chain options
- Perform an audit for payables and receivables
- Revisit your business interruption insurance
- Add or alter your revenue streams
- Work on converting fixed costs to variable costs
- Extend your reach (consider eCommerce, shipping to new cities and/or towns)
If any of these strategies are unfamiliar to you, or you’re looking for more information with regards to implementation and how exactly they can impact your cash flow, don’t hesitate to reach out to us!
Returning to “business as usual”
By practicing cash flow management and adopting some (or all) of the strategies listed above, businesses can effectively lessen or mitigate their risk when it comes to how COVID-19 impacts their operations. Companies that have not yet been affected by the pandemic will soon face adversity and so, they should not ignore these suggestions or think of themselves as “in the clear”. If this pandemic has taught us anything it’s that all businesses should implement a risk management and continuity plan moving forward.
The simple act of continuing to update your supplier network and customer base can drastically improve a business’s cash flow.
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