Connections for Success

 

04.09.20

Eight Ways to Get Creative With Cash Flow in a Crisis
Chris Arndt

Does the COVID-19 crisis have you strapped for cash?

In this quickly-changing COVID-19 landscape, the restrictions to your cash flow come hard and fast. In a crisis, restricted cash flow can be a double-edged sword. To stay afloat, a business must improve liquidity for fluctuating priorities. While inevitably, many will focus solely on cutting costs, there are a few other ways to get creative with cash flow in a crisis.

Here are a few creative ways you can come up with some cash in a crunch:

  1. Worry Less About Margin, More About Cash
    This goes against everything you have always been told up until now — but, in this current climate, now is not the time to worry about your markup on inventory. Do you need cash in the door and quickly? Forget about offering discounts that will make you a margin. Just sell off as much inventory you can, even if you are technically taking a loss. The more you sell, the more cash you will have in your hands.
  2. Offer Special Discounts
    This goes hand-in-hand with number one — by offering exceptional discounts, you can drive sales you might not have otherwise.
  3. Get on Top of All Your Accounts Receivable
    If you are not already, get on top of any outstanding receivables. To improve your accounts receivable cycle, consider offering early-pay discounts to increase cash flow.  

    If you are really in a cash crunch, you could investigate options for factoring your invoices; however, factoring is hard on your bottom line and controversial. You will want to be careful which company you employ. Some are more transparent than others. Look for companies that offer more flexible contracts with a policy open to selective invoices or ones who offer solid discount and advance rates.
  4. Consider a Way to Offer Recurring or Subscription Services
    Many individuals and companies will be looking to limit their own cash outflow for the foreseeable future. Look to pivot how you offer your products and services to meet that demand. Is there a way you can offer your product in a subscription format? It will be more attractive to your customers and it will also allow you to plan ahead with recurring cash.
  5. Apply for a Rainy Day Loan
    Ditch your line of credit and build your rainy day fund. In our last blog, we discussed the unique opportunity that exists with low-interest rates. If you have a solid P&L and balance sheet, without too much existing debt, take out a fixed-term loan to get some cash up front. It can either help you survive or, better yet, help you double-down.  

    Read more about how to get creative with cash and a rainy day fund here.  
  6. If You are Going to Cut Costs, Make Sure Those Cuts are Both Effective and Strategic
    Begin mitigating risk and streamlining your spending with a zero-based budgeting approach.  

    Where possible, swap fixed costs for variable costs. For example, reducing fixed salaries of your sales team by offering them a higher sales commission can be an attractive offer to your A-list salespeople.  

    Note that your management philosophy becomes important as soon as you begin using words like cost reduction. Nobody wants to jump to this, but if cutting costs results in discussions about layoffs, communicate with your remaining team to make sure they understand you are aiming to let your “C players” go to build a stronger, more efficient team. Do whatever you can to maintain a positive work environment. 

    Investigate options for cutting costs that will not impact your business. Look into whether you can defer rent or mortgage payments. Talk to your landlord or bank about special options available in this crisis.
  7. Have Your Accounting Team Look Into All Government Aid or Tax Credits Available to Your Business
    If they are not already, your finance team should be investigating every option available to your business with the recently passed CARES Act and stimulus package. That is not limited to the Paycheck Protection Program (PPP) or the Economic Injury Disaster Loan (EIDL). There are other resources available in the stimulus package, like the Emergency Paid Sick Leave benefits and Employee Retention Credit that may help your business stay afloat. That said, we advise all of our clients to go after the PPP loan first — with a 1 percent interest rate, 2-year term and a sizable chunk being forgivable, there is little downside to applying. It is important to note that it is on a first come, first-served basis, so act quickly. Read our resources on the Paycheck Protection Program and its updated program rules.

In a financial crisis, smart business owners should shift their focus to their balance sheet to uncover where to make adjustments to payables, receivables and inventory, in order to free up as much cash as they can.

Get in touch to learn more about cost-cutting, zero-based budgeting or how to apply for the PPP.

SBA Resources

Find the Paycheck Protection Program application here.

Find the SBA Economic Injury Disaster Loan Application here.

For more information, contact Chris Arndt at carndt@orba.com or at 312.494.7014. Visit ORBA.com to learn more about our Cloud CFO Services. 

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