Preserving Cash Flow

By Jenna Rice, CPA, MSA
Manager
Gray, Gray & Gray, LLP

The economic disruption caused by the Covid-19 pandemic has been sharp, steep and sudden. With significant portions of the business world either shuttered or forced to work remotely, revenue streams have been impacted across the board. It is imperative that you take steps to monitor cash flow to help protect your business. Here are seven steps you can take preserve your cash flow.

  1. Know your cash position. Prepare a detailed 13-week cash flow projection, adjusted for the new reality of the economic downturn. Make a “worst case/best case” assessment of revenue you can count on. Look for ways to reduce expenses without significantly damaging your company’s ability to operate.
  2. Understand your “burn rate.” How quickly are you spending money? If you trim expenses and overhead how long will your cash on hand last? Knowing – and slowing – the pace at which money is flowing out will give you a better handle on how much you need to be bringing in.
  3. Make decisions and make them swiftly. Avoid “analysis paralysis.” Layoffs and furloughs are never easy, but they could make the difference in the survival of your business. You must protect the core of your business so that it will survive beyond the crisis and hopefully enable you to eventually bring back those employees. Also bear in mind that employees will remember how you treated them during this time. Recognize their hard work and effort and be compassionate. Then in the event that you are able to bring back these employees, they will want to return.
  4. Accelerate receivables. Receiving money owed to you sooner rather than later will improve your cash position. Offer additional incentives to get customers to pay early, and don’t be shy about reaching out to customers who owe you money. Just as you are asking your vendors for patience, your customers may ask you for the same leniency. By understanding your cash position and knowing what you need to collect, you will be in a better position to offer altered payment terms if needed.
  5. Reach out to your creditors/vendors/landlords. From what we have seen, people understand what is going on and are trying to alleviate the burden as much as possible. A simple email to your landlord to work out an arrangement (such as deferred rent payments added to the end of the lease, or revised payment terms) could save you a significant amount of cash as you try to hunker down. Communication is key – don’t wait for them to contact you.
  6. Identify expenses that can be temporarily paused or eliminated. Some recurring monthly expenses and subscriptions can be put on hold. Do you still need these services? Or can you make do without them for the time being. Find out from the supplier if you can pause these services and resume again when the economy recovers.
  7. Find new sources of cash. Contrary to some news reports, business across America has not come to a full halt. Entrepreneurial spirit is at an all-time high, and opportunities exist in the middle of any crisis. What additional skills and resources are within your capacity to offer to existing customers or which might appeal to new customers? Adapt to the current situation and you’ll find your business will come out stronger on the other side.

If you have any questions about cash flow or other steps you can take to manage through this crisis, please contact Gray, Gray & Gray at (781) 407-0300.

Jenna Rice, CPA, MSA is a manager in the Client Accounting & Advisory Services Group at Gray, Gray & Gray.  For more information on our outsourced accounting services, please contact Jenna at jrice@gggcpas.com.

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