Cash flow is the circulatory system of any business. If it stops, you’re in big trouble.
With businesses facing immense obstacles and having to strategise quickly in the face of short- and long-term impacts of COVID-19, ensuring that your cash flow continues has never been more important.
Even in such a difficult environment, there are some simple steps that any business owner can take to stay on top of cash flow and ensure their business stays above water.
See what help is available
As business continuity is interrupted and mass layoffs occur in some industries, governments at a state and federal level have stepped in to offer business owners assistance in navigating difficult times. This can take the form of wage subsidies, business assistance, tax rebates or other measures. Depending on your state, industry and the specifics of your business position, there will be different kinds of help available to you.
Now is the time to sit down with an accountant or another financial advisor who is across all of the different schemes to check out what kind of cash flow assistance you can access and how you should go about accessing it. You should also re-check periodically, as there are new programs announced frequently and your circumstances may change to make your business eligible for assistance.
Bring your records up to date
The reality of running a business is that you’re frequently too busy doing the work to stay on top of paperwork at all times. When things are uncertain and you’re possibly not as over-committed time-wise, there is an opportunity to look at your systems and pick things up that have fallen through the cracks.
Take this opportunity to audit your invoices and you may be pleasantly surprised to find that there are jobs completed that you haven’t billed for, jobs billed for that haven’t yet paid, and partial payments that have not yet been completed.
If this is the case, or your audit requires hours sifting through receipts, it might be time to digitise your invoicing so you can easily manage your finances and automate reminders for clients who fall into arrears.
Getting up to date on your payments is great, but simply collecting the cash that has fallen through the cracks without plugging those cracks is wasted opportunity. Look at how each missing piece of income slipped by, and ask yourself whether you can update your business systems to make sure that doesn’t happen again.
After all, you will be too busy to pay much attention to it before too long, and you don’t want to miss out on income going forwards. Consider collecting part or all of your fee up-front for future jobs by requesting a deposit – not only does it help cash flow at the beginning of a project, but helps to solidify the commitment between you and your client.
Make honest, informed projections
Look at the work you have booked, and make as accurate an assessment as you can about what is going to change and what you will be able to rely on going forward. Look back over past years so that you can account for seasonal fluctuations in your business.
Identify which repeat customers will be likely to want maintenance or upgrades on previous work, and try to identify who may get gun-shy about their own cash flow situation and cancel planned projects.
The more information you can gather from past and present patterns, the more accurately you’re going to be able to plan for the future, even when things are changing rapidly.
If you can project with some measure of confidence your likely revenue over the short- to medium-term, you’re then in a position to assess your overheads and work out how much you should be looking to save in order to stay afloat if your business slows down.
Find your weak points and fortify them
Business owners who are overly reliant on one type of job, one client base, one geographical area or one piece of equipment are vulnerable. Diversifying your source of income builds resilience into a business. Often small and medium-sized business owners think diversification is something that only large corporates and investors do, but the principles that operate at the big end of town can be applied to small operations and sole traders as well.
If you’re overly reliant on a single source of contracts, your business may suffer if that operation looks to cut costs or goes under. If the appetite in the market that you service for one type of job starts to wane, is there another service you offer that will experience an uptick in demand at the same time? How about passive income? Do you have pieces of plant or equipment that you’re not always using that can be rented out?
Asking and answering these questions before you run into cash flow difficulties can be the difference between comparatively smooth sailing and a very rough ride.
Chris Strode is the founder of Invoice2go, the mobile invoicing app that gives small businesses and contractors control over their time and business. As a small business owner from a family of tradespeople, Chris created Invoice2go out of frustration with the lack of simple invoicing options available.