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Cash flow is the leading cause of business insolvency even in a thriving economy, so you can only imagine the size of the threat it poses to small businesses during COVID-19. With incomes falling for businesses across a broad range of sectors and tax bills, rental payments, commercial mortgages, and loan repayments still needing to be paid, it’s hardly surprising that many businesses find themselves on the brink of insolvency.
Fortunately, even with the unprecedented levels of uncertainty businesses are currently experiencing, there are still some potential solutions available to boost your business’s cash flow and keep it trading.
1. Cut your costs carefully
Cutting costs is a good strategy when times are hard but this is something you should only do very carefully. Depending on your business model and sector, it’s usually easier to reduce variable costs than it is to put a dent in your fixed costs, so always consider those first.
Your marketing spend is one variable cost that can typically be reduced immediately, but that’s only something you should do if you are not reliant on or cannot fulfill the sales it generates. Nonessential travel, meetings, maintenance, and even staffing costs can all usually be reduced, particularly if demand has fallen for your products and services.
The furlough scheme has helped businesses reduce their operating costs without having to make redundancies. However, there are also other options you can explore. For example, you could give staff the option of taking voluntary, unpaid leave or ask them to take accrued annual leave now while demand is low so you can operate at full capacity when things return to normal.
2. Consider alternative financing
These days, many more finance streams are accessible to small businesses and many of these will still be available even during the pandemic. Invoice finance, merchant cash advances and asset-based refinancing could all provide fast access to the working capital you need to pay your bills and keep the business afloat.
The funding options introduced as part of the government’s coronavirus support package are also well worth considering. The Bounce Back Loan Scheme, in particular, has been well received by small businesses, with more than £30bn worth of loans already approved. Importantly, these loans are 100% guaranteed by the government. That means, if the company fails and subsequently goes into liquidation, there will be no personal liability issues for the company directors as long as the funds were used for the benefit of the business.
3. Pay close attention to your receivables
Small businesses tend to take their attention away from their receivables when business is good. However, when times are hard, you must carefully manage your receivables to keep the money flowing in. With businesses at every level of the supply chain struggling, this could be a time when your customers consider delaying their payments to keep more cash in their businesses. Late paying customers when you’re already facing a cash flow shortfall is the last thing you need. That’s why you must have robust and rigorous collection processes in place.
You should focus on the payment performance on your customers and try to identify those that are showing signs of changing their payment practices. Offering early payment incentives and charging interest on late payments may persuade them to think otherwise. You should ensure you get the basics right with quick and accurate invoicing. Any mistakes in the billing process could lead to delays that now more than ever, you could really do without.
4. Introduce new revenue streams
Necessity is the mother of invention, or in this case, innovation. Your business might have been ticking along nicely pre-COVID, but if your key income streams are put under pressure, you may need to create new sources of revenue to survive. Taking your existing offering online or adding new products or services to your portfolio are tried and tested methods of boosting income. Alternatively, if there are assets you use to generate revenue that has been affected by COVID, perhaps there are other ways those assets can be used? Your competitors and other businesses facing similar challenges can be a source of inspiration if you’re out of ideas.
Do everything you can to stay in business
In the coronavirus economy, staying afloat is the primary objective for the UK’s small businesses. While some might be in the fortunate position to thrive, the vast majority are hunkering down and doing everything they can to boost cash flow and keep going until the world finally settles into its new normal.
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This content is brought to you by Sahzadi Sarah.
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