Small Business Cash Flow Management Strategies

Small businesses across the country are facing an unprecedented disruption due to COVID-19. Statewide orders to pause operations and customers staying at home immediately impacts cash flow to small businesses.

Below are some cash flow management strategies, developed by the SomerCor credit team. In addition to reducing discretionary/non-essential requests, clear staff communication, and payroll reductions, consider the following:

• Extend payables and have discussions with vendors/suppliers now, as they are likely more willing now to provide flexibility.
• Expect extension requests from clients with outstanding trade receivable balances, and work with your customers and find a resolution that works for both parties and their cash flow needs.
• Contact your creditors to discuss principal deferment and a covenant grace period for 3-6 months; be able to disclose all adverse effects on the business from COVID-19 with specific figures and metrics.  
• Utilize any existing cash cushions, including reserves and line of credits; consider extending existing credit lines if maturing this year.
• Develop daily budget measures with a focus on revenue, cash and operating outlays; coordinate with your finance teams on consistent reconciliations and adjust as needed daily.
• Compile daily, weekly and monthly forecasts in regard to earnings before interest, taxes, depreciation, and amortization and cash flow statements.
• Consider current cash levels, liquidation possibilities and excess cash flow to quickly rid of high cost debt, if practical.

Whatever your action plan, be sure to stay compliant with laws and regulations to prevent challenges down the road. Stay updated on new capital resources and programs designed to assist small businesses by visiting the SomerCor COVID-19 Small Business Resource Page.