Q: What are ways to preserve or even increase cash flow now and into the future?

A: The uncertainty and severity of the pandemic has reduced cash on hand and put future cash flows into question. Working capital and cost minimization should be first priorities, but management can’t wait for businesses to reopen to start planning recovery. Every business should be focusing on cash management and scenario planning for the future. In addition, assign a key employee, or a team of people, to closely monitor economic relief opportunities, tax and other incentives.

Conserving cash flow can be addressed from multiple angles. Analyze fluctuations in customer demand and mix to better understand customer needs and business operations. Evaluate current accounts receivable collection and update credit policies. Analyze inventory level adjustments while continuously communicating with your supply chain to identify opportunities for better discount terms, supplier rebates and accounts payable prioritization. Reach out to financial institutions to identify potential line of credit modifications, deferred interest or principal payment opportunities or covenant adjustments.

Most businesses have fixed costs that don’t vary with revenue. Business owners should take a fresh look at these fixed costs to try and negotiate some pricing breaks. Specifically address rent, utilities, insurance, office supplies, sales and marketing to decrease these costs as much as possible. Be mindful of the changes in fixed costs that are temporary vs. changes that could be permanent.

For many employers, workforce reductions are a painful reality. For those businesses that haven’t participated in the Paycheck Protection Program (PPP), it is necessary to reassess staffing needs. Even those who have a PPP in place need to think about staffing needs when the business reopens. Assess strategic initiatives and develop scenario planning around future staffing needs. A business that invested for growth but finds itself growing at a slower, or even negative pace, needs to evaluate their operating plans and the staffing needed to accomplish these plans. This needs to be updated as new information becomes available.

 

Mary Daugherty is a Family Business Center senior fellow in applied finance at the University of St. Thomas Opus College of Business.