What makes this time especially difficult is that not only are many businesses suffering a cash crisis, but so are their clients, vendors, and lessors. Many businesses seeing decreased cash flowing into their business, but they’re also likely receiving increasing pressure from lenders or accounts payable to pay up.
For many businesses, a beacon of hope was the opportunity for stimulus funding. However, if you didn’t receive the funding you were expecting, what are your options for extending the life of your business to survive this crisis?
7 Strategies for Surviving the COVID-19 Cash Crisis Without Stimulus Funding
While the government continues to pass unprecedented stimulus funding in the throughs of the COVID-19 financial crisis, many businesses are still left without a safety net. In this article, we take strategies derived from financial experts to “extend your runway” to improve your probability of survival and recovery.
1. Create a 3-Month Rolling Cash Forecast
One of the first, most important places to start in addressing the financial crisis is to know the state of your finances now and how much runway you have left. Regardless of which of the strategies you use below to save your business during the financial crisis, you can’t do any of them—or do any of them well—without a 3-month rolling financial forecast.
If you do not currently have a rolling financial forecast (or have one but haven’t updated it in a while), now’s the time to sit down and plan. Your forecast should not only include your current expected case projections but should include a best-case and worst-case view as well.
2. Cut Wherever Necessary
We weren’t going to include this one because it is obvious, but we’ve been receiving a lot of questions about cash flow, so we decided to include it.
Using your financial forecast, find cuts you can make to decrease cash flowing out of your company. It’s important to make these cuts as fast as possible to prevent loss. However, don’t make these cuts blindly. You don’t want to cut so deep that you debilitate your ability to recover and grow when the time comes.
It’s likely you’ve already made cash cuts in your business during the COVID-19 crisis. However, do you know exactly how much runway that gave your business? If not, apply these cuts to your 3-month rolling forecast and apply best case, worst case, and expected case scenarios to your projections. If the runway still looks bleak, it’s time to make more cuts. Your goal is to survive long enough for something good to happen.
3. Analyze Your Lines of Credit
Even though you may not have received stimulus funding, there are other financing opportunities available. Take a look at your existing lines of credit or where these lines of credit may become available.
This financial strategy is more difficult during a crisis than it is before a crisis, but a crisis does lead to an important learning lesson. You should be maximizing your lines of credit during the good times to have a more stable backup plan during the bad times.
4. Have a Relationship With Your Bank
Unfortunately, many businesses lost out on stimulus funding simply because they didn’t have a good priority with their bank. They may not have learned of the stimulus options fast enough, did not know where to turn, did not receive enough support in filling out the necessary applications, or simply weren’t prioritized. For any business of any size, the relationship you have with your banker is essential.
It’s not too late to jumpstart this relationship. Reach out to your bank—and don’t only reach out once. Begin developing that relationship so that when another opportunity becomes available, you’ll have a better chance of receiving the support you need to take advantage of it.
5. Reach out to Lenders
Another place to look is your accounts payable. There are a couple of things to consider here:
First, reach out to your lenders. In many cases, your lender or landlord may be willing to work with you to extend deadlines or even negotiate better terms. Reach out to each and every company to which you owe money and try to work with them. Most lenders know that their best chance of receiving money is to help you stay in business long enough that you can pay it.
Second, know your timelines. Don’t try to pay everything faster than you need to. Cash in your pocket is cash you can use to extend the life of your business or even take advantage of growth opportunities during this time. In many cases, your best bet is to pay the minimum payment terms when your payment is due rather than paying early—this is especially true if you’ve negotiated better terms with your lender.
6. Take Initiative with Accounts Receivable
Just as your lenders are more likely to negotiate better terms with you during the cash crisis, you can also do the same with your accounts receivable—after all, some money coming in is better than no money coming in. Consider loosening payment terms or offering early pay discounts.
This step should be taken cautiously. You should always have a good grasp of your clients’ current ability to pay. Know whether they’re capable of paying and when to expect payment. Don’t make sweeping offers to those on your accounts receivable list; instead, make personalized exceptions and opportunities based on what increases the likelihood of you getting paid.
7. Talk to an Expert
If you don’t have a high-level financial expert in your company, now is the right time to meet with one. Many strategic outsourced CFO firms are offering free financial consultations at this time. You can usually talk through your financial challenges or even give the expert access to view your financials to provide personalized advice for extending your runway and recovering from the crisis.
About the Author
Jerry Vance is the founder and managing partner of Preferred CFO. With over 15 years of experience providing CFO consulting services to over 300 organizations, and 28 years in the financial industry, Jerry is one of the most experienced outsourced CFOs in the United States.
You may also be interested in…
A fractional CFO is an experienced CFO who provides services for organizations in a part-time, retainer, or contract arrangement. This offers a company the experience and expertise of a high-end CFO without the in-house cost—salary, benefits, and bonuses—of a...
Generally Accepted Accounting Priciples (GAAP) Financial reporting is an important part of business that communicates the financial performance and results of a company. It records and presents information about the company’s financial position, revenues, expenses,...
The end of the fiscal year can be highly stressful for financial officers and corporate executives. The year-end closing procedure is time-consuming and sometimes brings unpleasant surprises. Particularly in times of economic downturn and short staffing, year-end...
The wise business owner will “know what they don’t know,” and will seek the appropriate experts such as financial advisors to fill those gaps.
If Your Company Doesn't Have a Financial Forecast, You're Wasting Time and Money Every company has goals. Where do you want your organization to be 5 years from now? 10 years? Most even have a general idea of the benchmarks you need to hit to get there—"By increasing...
Whether implementing a new software system, adding office space, acquiring another company, or any other substantial investment, companies want to know how long it will take to recoup the money they spend on major purchases. The way to determine this is by calculating...
Finding funding for your business is a process that takes a lot of time and effort, especially during the startup phase. Many entrepreneurs fail in their first attempts at fundraising because they are poorly prepared. Others get themselves into trouble by choosing the...
In these days of economic challenges and changes, many companies struggle with uncertainty about the future, seeking tools and resources to best position their businesses for financial success. Often it can be beneficial to bring in a financial advisor who has...
What is a Cap Table? Capitalization tables, commonly called “cap tables,” are highly useful spreadsheets maintained by companies that have multiple owners or investors. Cap tables are especially important for private companies at startup and in the early stages of the...