Your Best Defence Against Uncertainty? Cash Flow Management
Updated: Jul 23, 2021
By Angie Brown
You’re not alone if you’re finding it difficult to see the path forward. Facing unprecedented uncertainty, many business owners are plagued with more questions than answers. A large proportion are wondering if they’re adequately positioned to weather COVID-19.
Fortunately, there are steps you can take to put your mind at ease, overcome today’s unique challenges, and seize new business opportunities. The first, and most important, is revisiting your approach to cash flow management.
Why is cash flow management important?
A structured approach to cash flow management allows you to make informed decisions. Government support, postponed payments, and increasing your line of credit, can only carry a business so far. Performing a cash flow analysis, and responding to the results, is key to navigating uncertain times. Getting started can be daunting. It doesn’t have to be. At its core, a strong cash flow management approach involves three simple steps.
Step 1: Forecast cash flows
There are tools available to help with forecasting. If in doubt, a quick call to your advisor can set you on the right track. Try to map out what cash you expect to come in, in a specific week or month, against what is going out. After that period, look back to see what you missed, and make changes to future forecasts. Information is power. If you know exactly what is coming in, you can make better decisions about the money going out.
Step 2: Consider different scenarios
Run forecasts under different scenarios. For instance, see what your cash flow looks like if payments drop 25 percent, or you lose access to government support programs. This will help gauge how much wiggle room you have, and when immediate changes are necessary. It might help plan for a future closure, reduced productivity, or additional capacity restrictions.
Step 3: Honour existing obligations
Lenders are looking for open, honest, and transparent communication. Don’t hold back on a cash flow forecast because it might be wrong. Make your best attempt at the forecast and communicate you are fine-tuning the process. Lenders understand everyone is facing challenges. What they don’t like are surprises.
Extend your cash flow
With a better view of the cash flow picture, it will become easier to identify challenges before they arise and adjust course accordingly. Course correction may involve an injection of cash. Believe it or not, you might have more money at your fingertips than you realize. Filing returns or remittances early, rather than waiting until the deadline, can put a refund in the bank much quicker.
Perhaps it’s time to accelerate invoicing processes and respond faster to unpaid receivables. Lenders and suppliers may have programs in place to help cash-strapped customers. In the era of COVID-19, government support programs are evolving quickly. It’s worthwhile to revisit those programs periodically.
Reach out for help
While times are uncertain right now, one universal truth continues to hold true. Cash is king. Understanding how much you have, how much you spend, and asking for help is key to weathering this storm.
Angie Brown (CPA, CA, CIA) is a leading business advisor with Grant Thornton LLP in St. John’s. She is an agile professional with over a decade of accounting and corporate finance experience. Angie creates value for her clients through business planning, financial modelling, buying and selling businesses, feasibility analysis and cash flow management.
Whether you’re just getting started, expanding a current opportunity or selling your business interest, Angie and her team have the expertise to help you navigate through all levels of change.
Contact Angie Brown at Angie.Brown@ca.gt.com or +1 709 778 8841.