8 Tips for Businesses on Managing Cash

The COVID-19 crisis is affecting many businesses. Some have been forced to close temporarily or alter operations, while others are facing less consumer traffic or demand. No matter the cause, an unexpected downturn in revenue can result in a cash shortage. As it is unknown how long COVID-19 will affect businesses and demand, it is critical that all business owners and finance executives understand their cash position. The following tips will help you manage your business's cash:

  1. Negotiate with Vendors. Many companies are facing cash struggles or looking to preserve cash due to the current uncertainty in the business climate. However, communicating is critical, especially if you are unable to make a payment on time. Contact your vendors, and ask whether there are options to extend payment due dates. Be creative. Offer to pay a portion of your bill, if you are able, with the balance to be paid at a later date. While some vendors may not be able to accommodate your request, others may be able to help you, at least temporarily. If you cannot pay your bills, ask your vendors if there are other things you can do to stay in good standing. Stay in touch with your legal counsel if you are unable to pay your bills or other debts.
  2. Communicate with Customers. Like with your vendors, communicate with your customers. If feasible, offer temporary discounts for paying quickly or even within their regular payment terms. Determine if your method of sending invoices is most efficient for the customer; perhaps customers receiving invoices by mail can receive them electronically, which will expedite payment. Check on any overdue payments promptly, and work with customers to find win-win payment options that allow you to manage your cash comfortably while also helping your customers. This may help build customer loyalty, which will pay off in the future.
  3. Reduce Expenses. As in any time of economic hardship, a business must identify costs that can be reduced. Study your expenses. Determine what can be cut back or eliminated. For example:
    • Think about getting rid of the community water cooler, which would both save the company money and eliminate potential gatherings of workers in a small area.
    • Consider price shopping goods or supplies with other vendors. But before moving your business, negotiate with current vendors to give them a chance to retain your business, which is likely important to them, especially during this crisis.
    • Talk with insurance brokers or service providers to determine if changes in your business can help reduce your costs. Insurance policies, software licenses, and training programs are three areas that may use your sales, profit, or headcount to determine your fee.
    • Encourage co-workers to act conscientiously, ensuring efficient use of supplies, materials, and other goods. If able, offer to share some of the cost savings with employees who generate unique ideas.
  4. Sell Unused Assets. Do you have assets not in use, such as obsolete inventory, scrap raw materials, aged equipment, or office furniture? You might be able to sell them to raise cash. Consider contacting vendors or competitors who may have a supply shortage and need the items. Think creatively as to who may have a need for your unusable items. If you are looking to preserve cash long term, consider donating unused items you cannot sell to obtain a possible tax deduction.
  5. Use Your Line of Credit. Do you have a line of credit you aren’t accessing? Consider drawing funds to help alleviate current working capital constraints. Also, if bank funds are available to you, stay in touch with your banking contact regarding the bank’s plans during a shelter in place or quarantine order. You might consider drawing excess funds to ensure you have adequate cash in case orders affect your access to your line of credit.
  6. Loans. If you cannot raise enough cash from your business to support your ongoing needs, seek alternative funding arrangements. Talk with your bankers, other lenders, or local or state government agencies about funding availability. The U.S. Small Business Administration is offering loans to help businesses in approved areas that are short on working capital due to COVID-19. More information about this program can be found at SBA.gov/disaster.
  7. Network…from a Distance. Do not allow social distancing to separate you from your network. Stay in touch with your key advisors and business contacts. Instead of meeting for coffee or lunch, schedule video calls and share a drink or meal together virtually. Talk about challenges for your business. In strong economic times, networking is powerful; in challenging times, networking can be powerful as well. Your contacts may have resources that can help you navigate the challenges you face, including options to improve your working capital.
  8. Plan Your Cash. Create a rolling cash forecast. Consider forecasting weekly cash availability for a minimum of the next two to three months, but ideally for the next six months or longer. Evaluate whether your cash position will remain adequate or whether there will be challenges to overcome. You can use cash forecasting to evaluate potentially damaging scenarios, such as a major customer delaying payment. Update your forecast frequently and ensure it reflects your current position. If you are uncomfortable or inexperienced in forecasting cash availability, engage the advice of your financial advisor to ensure your plan provides the information you will need.

We invite you to contact us with your questions or concerns about cash management.

About the Author(s)
Amy Reynallt is a Manager with the HBK Manufacturing Solutions Group in the Youngstown, Ohio office of HBK CPAs & Consultants. She joined the firm in 2019 following 13 years in the manufacturing industry. Amy is experienced in navigating the strategic and financial matters associated with manufacturing and works closely with manufacturers to help them plan, execute, and meet their short- and long-term financial goals.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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