Operating Lean & Managing Cash Flow: Keys for Navigating the Economic Downturn
Unless you own a grocery store, online streaming service, or produce toilet paper or sanitizing products, your business has most likely been negatively impacted by coronavirus. On both a national and global level, we are realizing that this is not merely a blip on the radar but something that will have a deep financial and economic impact for months and possibly years to come.
We have already learned a lot from the virus. Lessons well beyond proper hand-washing techniques. One of those lessons is that life and business are unpredictable. Things are far more out of our control than we realized. The businesses that make it out of this – and will be truly prepared to handle any possible disruption – will be those that can operate lean and effectively manage their cash flow.
Perhaps your business was in a terrific spot before this began. Or, maybe, you were already struggling to get by month-to-month. Regardless where you are starting from, now is the time to begin adapting your business for our new reality. This pandemic can tear your business down or serve as a powerful call to action to review how you do things and begin to figure out ways to do them better. The following are areas to consider to begin reducing expenses and improving cash flow to improve your current financial situation and prepare for the future.
Eliminate or Downsize Your Office – One thing many companies have realized as a result of coronavirus is how much of their work can effectively be done remotely. Now is the time to check on your lease terms and consider moving to a smaller space or eliminating a central office space completely.
Move to the Cloud – Depending on your needs, it may be advantageous to get rid of your servers and move to the cloud. If you decide to eliminate your office, this will likely happen by default. While there are pros and cons, in many cases, moving to the cloud can save you thousands.
Employee Travel & Expense Accounts – On a global level, we’re learning just how much can be done via video chat and other online meeting and workspaces. Harness this knowledge to reduce the frequency with which you and your team travel. Further, review expense policies and put limits and caps where appropriate. Per diems can give employees a sense of freedom while allowing you to control expenses.
Marketing – Marketing can be a large expense but is more important now than ever. The trick here is to make sure you are optimizing your marketing spend. You should carefully evaluate data to determine what marketing efforts or platforms receive the highest ROI. Digital marketing isn’t right for every company but it not only tends to be more cost-effective than traditional advertising methods, it also gives you a vital lifeline to your customers. Social media marketing in particular gives you the ability to instantly share information as your business changes, including closing and opening, running promotions, launching or discontinuing products, etc. Further, internet marketing provides invaluable data that allows you to adjust and pinpoint your efforts in a way other types of marketing do not.
Improving Cash Flow
The purpose of cutting expenses is to be able to withstand a – hopefully – temporary reduction in revenue but also to free up cash flow. When things are tight, cash flow is especially vital to business success. The tighter things are, the more important it is to have a short-term cash flow forecast. In addition to reducing expenses, consider the following for improving your immediate cash flow position.
Call Your Creditors – The easiest way to free up cash in the short term while you get sales back on track or look to secure relief funding, is to identify your largest creditors and contact them to discuss temporarily deferring or reducing payments, preferably without penalty. Nearly everyone is sympathetic to the strains created by coronavirus. The entire globe is feeling it. Your vendors and lenders may not be able or willing to work with you but you won’t know unless you ask.
Evaluate Inventory Practices – Inventory is a place where a great deal of cash gets tied up. Although in the accounting sense inventory is an asset, it can quickly become a liability in a slowing economy. Now may be the time to consider options like cutting underperforming product lines or transitioning to a just-in-time inventory strategy. Any changes you make will likely involve suppliers or impact customers so make sure to carefully consider all aspects before implementing.
This is far from an exhaustive list of suggestions. Rather, this identifies highly common expenses and cash risk areas, or those that you may be able to control quickly. Ideally, you should review all expense items and any places where you have cash tied up. Now is the time to get creative with solutions and challenge the status quo. The quicker you adapt, reduce expenses, and improve cash flow, the better position you will be in to survive the coming months and years.