Finance and Liquidity – Cash Preservation During COVID-19

No matter what type of business you’re running, the chances are that COVID-19 made things much more uncertain than they were before. Uncertainty is not a good thing when you’re running a business, so you have to do what you can to adapt to the markets’ current situation.

Since we don’t know when the pandemic will end, you have to prepare for the worst and protect your business from hitting rock bottom. You can do that by extending your cash runway and improving capital efficiency. Stay with us, and we’ll give you a few tips on how to do that.

1. Extend Your Cash Runway

The first thing you should do is calculate the ideal cash runway length to ensure that your plans become a reality. The new situation will put your financial management to the test, and you will indeed have to make changes as you go to meet your goals.

If your cash runway is too short, your plans might fall apart before they become a reality. If it’s too long, you will lose valuable resources without getting any real benefits. Your cash flow runway tells you how many months your business can stay afloat before you go bankrupt.

The pandemic has made things far more difficult, which is why you have to make certain cuts to ensure that your runway is as long as you need it to be. You can do that in three different ways:

• Cut down on expenses;
• Change your strategy quickly;
• Get your investors to invest more;

Each method comes with positive and negative effects, so don’t rush with your choice. Try to put everything down on paper and make the moves that make the most sense. Now is the perfect time to make those much-needed changes you were putting off for some time.

Make a cash forecast, take all actions you can to preserve cash, limit spending, and prepare your business model for the worst. Share your findings with the rest of your financial team, and you will be able to come up with a working solution that should extend your cash runway for a few months at least.

2. Improve Capital Efficiency

Many businesses faced liquidity problems as the COVID-19 pandemic took the world by storm. All previous capital management plans were wiped out overnight, pushing companies to make new plans and adapt to the current situation. Proper capital management should be one of your biggest concerns if you want your business to survive. You have to improve your working capital and prioritize your spending as soon as possible.

Start by identifying your priorities and access your business in its current state. Keep in mind that cash flow is the most important thing to focus on, so start your optimization there. Reduce all unnecessary costs, put smaller projects on hold, and improve your customer experience to promote sales. You will get all your money back once the markets go back to normal.

Invest in tools that will allow your CEOs to improve your company’s visibility. Keep a close eye on the financial health of your customers and suppliers. Work on introducing new payment options, contacting your suppliers, and telling them that you will be late with your payment, but only if your suppliers agree. If not, always ensure that they are paid in full.

Go over your credits and reach out to your biggest customers to ensure that all payments will be made on time. If your customers can’t promise a payment, you will get to know potential issues before they happen.

The supply chain is particularly under pressure during the pandemic, and it will undoubtedly negatively impact your company. You should think about reducing your offer only to those products and services you can provide. If those products have a high turnaround speed, you should make sure that you can restock on time before you run out of stock entirely.

3. Protect Your Business

No matter how well prepared your business plan was before the pandemic, things have changed, and the chances are that you’ll have to adapt to keep up. Here are a few things that can help you protect your business during the pandemic:

1. Create a plan – Revamp your emergency preparedness plan and outline the steps your company will take if the pandemic harms your business. That includes steps you’ll take to protect your employees, what to do if your staff gets sick, and how to cope with possible complications due to the pandemic.

2. Establish a work from home policy – Allow all employees who can work from home to do so. That will minimize the chances of an outbreak within the company. Introduce new remote procedures and guidelines to keep your business running remotely.

3. Keep your employees informed – Communicate with your employees about news related to the pandemic. Remind them to stay safe with emails and messages, and include a short overview of what precautions they should take to stay safe.

4. Use federal relief benefits – Most governments offer some kind of federal relief benefits you should use if you can. That includes low-interest federal disaster loans, income tax deferment, and so on. Your government needs your business running, and if they offer help, make sure that you use it.

Conclusion

Times of crisis are followed by financial uncertainty that threatens to close down many businesses all over the globe. The pandemic has shown just how fragile some markets are and that even the biggest companies fall apart without the right action plan.

You must do what you can to ensure the safety of your business and your employees. Humans can adapt to almost anything. With some careful planning and the right financial moves, you will be able to survive through the pandemic and continue with your original plans once things blow over.