The COVID-19 pandemic created significant health and economic impacts for which very few businesses were prepared. As some businesses slowly begin to receive federal assistance, others are simply trying to keep their doors open. Even as restrictions are loosened, the after effects of the crisis will be felt for many months, possibly years, to come. The better you manage your cash flow today, the higher chance your business will have for a healthy economic future.
The following are tips for managing cash flow:
- Bill Timely. Send invoices as work is completed. The sooner you get the bills in your clients’ hands, the better chance you have of getting paid.
- Follow Up. Do not rely on statements and emails, especially for aging accounts receivables. Call the clients. Keep in mind that they are trying to manage their own cash flow. Be genuine in showing you care, and suggest setting up a payment plan. Getting something is better than nothing, and working with clients will help preserve your relationships.
- Stop Spending. Evaluate your expenses and identify where you can make cuts. Consider eliminating or reducing bonuses, travel, meals, and entertainment. If travel is a crucial part of your business, minimize expenses by being frugal with airfare, lodging, and meals. Implement an overall tightening of the belt throughout the business.
- Trim the fat. It may be necessary to adjust your work force. Look for under-performing employees and considering combining roles. Be sure to follow appropriate labor and employment laws.
- Accounts Payable. Pay your bills as soon as you are able. Putting off payments with only dig a deeper hole. If you are having trouble, communicate with your creditors to negotiate payment terms or a payment plan. Consider your options carefully and do what makes sense for your business.
- Timing. Prioritize the timing of all cash outflows. For example, if retirement plan contribution matching can be delayed without penalty, push it out as far as possible and apply funds to the areas that keep you in business, such as rent and payroll.
- Consider Your Options. Federal, state, and local assistance is available. Speak with your business advisor to determine what options are best for your situation.
- Stay Informed. Know where your finances stand daily – what is coming in and what is going out. This will help you better assess where adjustments need to be made.
- Project Cash Flow. The most important tip, and one that is often overlooked by businesses. Project cash ins and outs for the following six to seven months. This process does not take much time, and can help you identify where to cut costs. It will also give you peace of mind and enable you to make decisions with confidence. Projections should be on current situation and worse-case scenario. Better to over-perform than fall short.
At Price Kong, we do more than taxes. We regularly advise clients on their business practices, including managing cash flow. For more information, visit pricekong.com.
Check out precautions taken by Price Kong due to Covid 19 to ensure the safety of our clients and personnel.
About the Author
Ross Dietrich has over 20 years of accounting experience. He became a certified public accountant (CPA) in 2001, and is licensed in Arizona, Florida, and New York. In addition to serving as the firm’s managing partner, he is the audit partner and leads the firm’s construction and cannabis practices. Ross focuses on providing attest services, which encompass audits and reviews of financial statements, as well as compilations. He has performed hundreds of financial statement and employee benefit plan audits during his career. Ross is also experienced in the areas of tax and accounting, and has participated as an expert witness for several lawsuits to provide testimony on accounting matters. His clients represent a wide range of industries, including construction, cannabis, financial, legal, governmental, closely-held businesses, and non-profit.