6 Ways to Manage Cash Flows During Covid-19
If someone sat down to make a list of an entrepreneur’s worst fears, it would probably include everything that the Covid-19 pandemic brought with it. Demand dropped, supply chains broke, funding plummeted and cash flows dried up. And the sad reality- it pretty much happened overnight. Nobody was really prepared for this, not even the big guys.
So what can startups do in such a time? The most prevalent advice is to take care of cash flows and just stay afloat until some normalcy is restored. While it is easier said than done because there are far too many variables to consider in times of crisis, here are some things you can do to manage your cash flows.
Reduce Business Spending
Major overhead costs usually include rentals, wages and salaries to employees, traveling/ conveyance costs etc. Reducing such overhead costs the most effective way to save money since most of these are directly in your supervision.
If you are worried about paying rents, you should go to your property owner and discuss the same. Talk about the measures you have put in place to help your company stay afloat, give them an alternative as to when you can pay them.
If your employees are working from home, you will automatically save on traveling/ conveyance cost. However, a work from home policy and regular collaboration on work progress is a must ensure more efficiency from employees.
Additionally, if you are worried about giving salaries when income is negligible, consider talking to your staff and explaining your situation. Keep them in the loop regarding the company’s finances and look to temporarily reduce salaries (including yours) instead of laying off workers. If you keep your employees in good standing, they will understand your situation.
Regular Budget Revisions
Another important task at this stage is to revise your budget keeping in mind present market scenarios. It will give you a heads-up on your income and expenses and greater insights into where other costs can be reduced. Having a budget in place will also ensure that you are mindful of adhering to what you decide.
It is equally important to revise your budget regularly in times of crisis. Now that different government guidelines and clarifications are coming through almost every week, be sure to stay updated and improvise accordingly. In any case, staying within the boundaries of your budget is a good habit to inculcate for the long run.
Client Incentives
If manageable, consider working around a strategy for consolidating your volume of trade and lowering your margin profile to comfort your clients. Providing simple incentives to your customers can ensure that you have some cash inflows even in turbulent times. You can offer discounts on early payments, provide in-kind benefits or provide some coupons that can be redeemed sometime in the future. You should also take care that receipts are duly and timely sent to clients from your end.
Also, knowing that this is a humanitarian crisis where everyone is struggling, it is always a good idea to talk to customers and explain why you need payments upfront. You have the possibility of negotiating as well- maybe the payments can be staggered over a period of time.
Inventory Management
With supply chains being badly affected and imports being halted, inventory management becomes extremely important. As an entrepreneur, you do not want to waste any goods in your inventory since it translates into a loss of income. You must keep a continuous check on the economic order quantity which indicates the number of units the company should add to its inventory to minimise the total costs of inventory. Also, be updated with the changing economic trends for taking intelligent decisions.
Inventory management, of course, is critical for companies selling physical goods but it is difficult to manage it during a crisis. Two opposing forces come into play. Firstly, a startup looks to have enough buffer because the procurement of new goods is challenging and may be stopped without prior notice given labour and raw material shortages. Secondly, the inventory stock at such times cannot be too high because there is a chance that goods will go bad, especially if the product has a shorter shelf life.
As an entrepreneur, you should try and find the optimum balance between both these aspects and ensure that the risk you take is what you can cover. Always keep market conditions and expectations in mind before taking such a call.
Making Pivots
The biggest competitive advantage for any startup is the ability to adapt and pivot when required. You can derive income from non-traditional sources and revenue streams to help you stay afloat. It also gives you an exciting opportunity to venture into fields which you usually wouldn’t have jumped into.
They say never let a crisis go waste. This may be the perfect time for you as an entrepreneur to build and perfect different strategies and test new markets which investors seem to be bullish on. You have more time to learn and hone skills and make pivots accordingly.
Seek Delayed Payments
As mentioned earlier, this crisis is unique and people across the globe are affected in one way or another. In case you are unable to fulfil orders on time or are unable to clear any dues, make sure you talk to the relevant people. There is a good chance that they will hear you out and offer terms to make it easier for you.
Bottomline
While uncertainty still exists over when this pandemic will come to an end and whether life as we know it will return, it is the right time to learn and prepare yourself for such situations. Entrepreneurship brings with it numerous challenges manifested in different forms. Consider Covid-19 to be the same- accept problems, innovate more, think outside the box, keep your customers and stakeholders in confidence.
Try to find ways around benefiting the humanity at large if you have any breakthrough ideas which may help the world come out of these challenging times.
