Last updated on 3/26/2020
Businesses and individuals in the Gulf South are no strangers to disasters. The coronavirus pandemic is a disaster unlike those we have seen before – its reach is wide and duration uncertain. Business leaders, however, can find comfort in the lessons we’ve learned from past disaster experiences that have taught us to think and operate differently. During this time of crisis, businesses should be thinking differently about managing their cash flow – not to make a profit, but to answer questions such as:
The following is an overview of recommended steps to shift your company’s perspective on cash flow management during this unusual time of crisis. We have also created an Excel template (available below) to help you assess and refocus your cash flow management.
One of the first steps companies can take to manage cash flow during a crisis is to forecast basic cash flow components. This will help you identify potential challenges, measure impacts, and implement strategies to improve cash flow positions.
|Revenue and Expense Management
|Managing the Cash Conversion Cycle
Cash flow management starts with revenues and expenses. Businesses often have more control over these areas as opposed to outside financing, third-party vendors, or customer collections. Also, your ability to forecast can help with other decisions, such as reducing inventory purchases to match expected sales reductions.
The cash conversion cycle consists of inventory, receivables, and payables. In general, companies should look for ways to decrease days in inventory and days in receivables (collections) while increasing days in payable.
Fixed assets are required for most businesses, and the cost to maintain fixed assets can be significant.
Businesses may need to rely on debt more heavily during times of crisis. While debt can provide relief, the money is not free. Businesses should carefully asses credit options and the amount needed to get them through a crisis.
Contact us to discuss cash flow management for your organization.