COVID 19 Cash Management Tips for California Businesses
With the recent COVID 19 global pandemic, it is more important than ever to manage your cash effectively. While we know cash flow is the cornerstone of any business, it is often easy to lose sight of those controls when times are good. But cash management and cash flow are vital to your business success.
Here are some tips you can use during COVID 19 and anytime to manage your business better and be prepared for any Black Swan Events.
COVID 19 Cash Flow and Projections
You should always have a cash flow sheet with projections about future income. But during a Black Swan event like COVID 19, it can be hard to make predictions about when income levels will return to normal and perform ideal cash management. But there are some steps you can take until it does.
Determine Costs
You will need to determine the costs you need to continue operating your business at the bare minimum and scale it back up to ‘normal’ operations. This includes things like mortgage or rent, payroll, utilities, and others. You can cut some of those expenses as you are able.
Eliminate Non-Essential Expenses
Nearly every business offers perks or has subscriptions, recurring orders, auto ships, and other expenses that can be paused or eliminated when income is uncertain. For the most part, these can be either paused or negotiated. Businesses have been able to negotiate lease pauses, extended payment windows, and more.
The key is communication. Talk to your vendors, clients, and others. Make arrangements to maintain your relationships while respecting each other’s needs and circumstances during challenging times. In the long run, it can benefit both parties.
Tax Time
Even the IRS is working with businesses during the COVID 19 pandemic, and the tax deadline has been moved until July 15, 2020. But the IRS is also negotiating payment windows and other factors for businesses impacted by COVID 19.
Use whatever data you can to figure out your projections and talk to others in your industry about the market as well. You don’t have to weather the storm alone.
Get a Business Valuation
You can’t know what your business is worth and if that value is going up or declining unless you get a business valuation regularly. Many businesses make this a part of their annual plan. At Rogerson Business Services, we offer business valuations at a reasonable cost, and even have a FREE business valuation tool you can use to get a general idea of your business value. It will also give you a good idea of what paperwork you will need and what the more formal business valuation process looks like.
Customer Service and Cashflow
At the same time that you want to maximize your cash flow, you also want to take care of your customers and maintain good relations with them. Some larger companies have failed horribly at this, as evidenced by responses to them on social media. But you don’t have to be one of them. Here are some options for you.
Handling Refunds
You may have customers who are due refunds, or who will request them due to circumstances. It’s understandable. They don’t want their money tied up in goods or services they won’t be receiving for months at a time, especially when they may be experiencing hardships of their own.
One way to save some money is to issue refunds in check form rather than ACH, which may come with fees as high as 3%. You can also be creative by offering credit with your company, complete with a coupon so the customer will both remain loyal and save money on future purchases.
The Gift Card Option
A creative way many businesses have maintained cash flow at this time is to offer gift cards for future purchases, also tied to discounts. You can offer this as a refund option, but also as just a future purchase option for both new and returning customers.
The beauty is that these things can be offered digitally, enabling customers to make purchases no matter what local restrictions are. It’s not only good cash management, it’s good business.
Diversify
Another way to keep your customers happy and to keep good cash management is to diversify and offer new and timely products and services. We’ve seen musicians offer virtual concerts and special merchandise. Medical practices have diversified into telemedicine and other services to keep patients engaged and up to date.
Think of a new niche in your industry where you can engage and serve your customers virtually and engage them that way.
The main point is that you continue to serve your customers and grow your business. This can keep your business profitable and prepared for growth. Remember, no matter when you plan to sell or exit your business, profitability is the key that draws in buyers.
Generate Cash from Assets | Cash Management Done Right
Your business likely has some assets you can generate cash from if need be. You can liquidate excess inventory, sell outdated equipment, and access other liquid assets as needed.
While most businesses should have a plan in place for Black Swan events, they do not. This is the time not only to evaluate what assets your business has that you can generate cash from but what assets can be part of your future planning for unexpected events and disruptions in income that impact your plan for cash management.
You should have business insurance as well, and often these policies include potential payouts for income disruptions. Check with your agent or your insurance company for more options.
Capitalize Your Business
The one thing you need to retain profitability is capital, and there are several ways you can capitalize on your business to handle an emergency.
- Government Relief: There are PPP loans, grants, and SBA programs along with state and local programs offering assistance that can help you with cash management. You can get help from those sources to keep the capital base of your business stable until a “new normal” emerges. There are several options in California you can explore.
- Banks: Banks are offering small business loans and other products designed to help California businesses during the COVID 19 crisis. You may be able to get a short or long-term loan based on your needs.
- Borrow from Yourself: You may be able to borrow from your 401K plan, paying yourself back with interest, take out a Home Equity Line of Credit (HELOC) or borrow against other personal assets you may have. While there is some risk involved in this strategy, it can help you capitalize on your business temporarily.
- Equity Financing: Seeking outside backers for your business has its challenges, but in some industries, this can be the right answer at times like these. Venture capital may be harder to get right now, but if your business is in good shape and in an industry that will likely experience recovery and growth going forward, this is an option you should explore.
Explore all the options at your disposal for getting capital for your business and keeping it in good financial shape moving forward.
Reassess Your Plan for 2020
What was your plan for 2020? The likelihood is that plan has not stayed the same over the last few months and your cash management has likely suffered. Nearly every industry everywhere has been disrupted in one way or another.
But why did you go into business in the first place? The likely answer is some kind of passion. If you have lost that passion, it might be time to consider selling your business. Even if you are not ready to sell right now, it pays to consider that every single business owner will exit or sell their business at some point.
The key is to do what brings you joy. If your business no longer meets that need for you, you may want to start the process now. Selling a business takes time even under the best of circumstances, and you’ll want to make sure your business is profitable when the time comes.
See also: Cash Flow | 19 Strategies You Should Take Now To Improve Your Income
If you’re ready for a business valuation, or ready to sell your California business, contact us here at Rogerson Business Services. We would love to be your California business broker. See also: Income Approach Valuation | Finding Business Worth Easy
