How to Manage Cash Flow in a COVID-19 World

Does your business have enough to make it through the next month? 

How about the next six months?

As the world grapples with the COVID-19 (coronavirus) pandemic, organizations are operating on a long and uncertain timeline—and facing significant cash flow issues. The virus has shut down cities, upended supply chains, forced teams to go remote, brought travel to a halt, and diminished demand for everything but necessities—all of which has squeezed businesses’ resources and devastated their revenue-generating capacity.

Unless you stock or deliver food, produce hand sanitizer, or run a teleconferencing or streaming service, your company is likely in a cash crunch.

In an ideal world, this wouldn’t be a problem until summer or fall 2020, assuming—as some scientists predict—that COVID-19 will continue to disrupt our lives by then. Conventional business wisdom is that a company should have several months’ worth of cash reserves in the bank at all times. Some advisors go so far as to recommend maintaining 18 months of runway at minimum (which would neatly align with the timeline for an expected coronavirus vaccine).

But as business owners know, this advice is like “get at least seven hours of sleep per night” or “exercise for 30 minutes a day.” We know it’s what we should be doing, but we don’t—because, often, we can’t. For countless organizations—including many of the world’s biggest companies—ensuring liquidity for more than a few weeks feels unfeasible, if not impossible. And if you haven’t built up cash until now, a pandemic is a hell of a time to start. 

Fortunately, there are several ways to keep your business afloat during this difficult time. The key is to think strategically both in terms of accessing capital and modeling cash flow. 

Finding the Money: Take Advantage of All Your Options

If you’re strapped for operating capital right now, take solace in the fact that you’re not alone. Millions of businesses are dealing with the same challenges you’re facing. Your competitors, vendors, and partners have likely had to lay off workers, postpone or cancel major plans, and make other wrenching decisions—not to mention the personal tolls on owners and employees and their families. The coronavirus has hurt all of us, but we’re all in it together.

The massive scope of this crisis is in some ways advantageous to businesses, as it’s prompted the federal government to take action that benefits nearly everyone. In late March, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act), a historic aid package that injects $2 trillion into the US economy—including $349 billion for small businesses. Under the law, most companies and nonprofit organizations with fewer than 500 employees are eligible for up to $10 million each through 7(a) loans with the Small Business Administration. Interest rates are capped at 4%, and loans may be forgivable in many cases.

An SBA loan isn’t your only option, however. You can also consider one or more of the following:

• Business lines of credit
• State, county, and city assistance programs (click here for a comprehensive list)
• Corporate aid (such as Facebook’s $100 Million small business assistance program)

Be sure to reach out to your financing sources. Talk to your bank or credit card issuer. Many lending institutions are waiving fees, offering assistance, reducing minimum payments, and temporarily suspending interest rates during the COVID-19 pandemic. There’s a good chance that your lender is willing to work with you to figure out a stopgap solution for your business.

Whether you can access financial relief or not, now is the time to think entrepreneurially and get creative. A shift in your business model or delivery model could bring much-needed cash to your accounts. Here’s how some companies are navigating the coronavirus crisis by changing how they do business.

Modeling Cash Flow to Make Better Short- and Long-Term Decisions

However you’re able to secure capital during these next few months, it’s essential that you retain full control of and visibility into your organization’s finances. 

For one, it might be a prerequisite for accessing cash. Your lenders may require you to verify your solvency and generate ongoing liquidity reports. 

But cash flow modeling is equally important for your own purposes of business management and decision-making. It shows you what you’ll need on hand week by week, month by month, so you can shift from pure crisis mode to longer-term planning. It could mean the difference between laying off an employee now and a month from now.

Cash flow analysis can help you decide…

• what kind of remote work subscription software you can pay for, and for how long;
• if you can afford to let a customer or client delay an invoice payment;
• whether you need to take out another loan or line of credit;
• if it’s time to sell off your equipment and excess stock, or if you can wait;
• what kinds of marketing expenses and ad buys you can pay for and when;

…and much, much more. 

When you analyze your cash flow, you reveal opportunities to save money and spend smarter. As Matt Lew, senior manager at Deloitte told CFO Journal just a few months ago—before the coronavirus had spread beyond China—cash flow modeling “can enable agile decision-making that becomes a competitive advantage when opportunities may be available for only small windows of time.” 

Right now, for many businesses, the window of time has never been smaller.

Ask Us for Help

Unless you’re an experienced accountant, you probably didn’t get into business to model cash flow. The good news is that you don’t have to do it by yourself. At Quantive, we offer affordable, on-demand cash flow forecasting as part of our consulting services.

Quantive’s CFO experts can help you effectively plan for the next few months so you can optimize your business performance during the COVID-19 pandemic—maximizing your revenue and minimizing your costs. 

In addition to cash flow forecasting, we also provide:

• Payroll forecast and rationalization
• Outsourced controller services
• Spend analysis
• Line of credit analysis
• Debt financing / debt placement
• Bookkeeping
• Liquidity analysis
• Budgeting
• Development of best-in-class financial procedures 
• Exit preparation

To learn more and get started ASAP, contact us.