Collecting Cash & Managing Cashflow

Managing cash flow in your business

Businesses should review cash flow and working capital projections, running scenarios on profit and loss, balance sheets and cash-flows with various degrees of interruption.  

Assumptions could include; reduced capacity, parts of the business being inaccessible or shut down and the length of time the disruption lasts. It is important to review regularly to manage liquidity risk.  

Depending on reserve levels and how exposed your sector may be, you may need to discuss expanding debt facilities with lenders, postponing large financial outgoings, anticipating contract problems, and arrangements with suppliers and landlords to extend credit. 

SUPPLY CHAIN

Businesses need to examine their ecosystem to identify where the vulnerabilities are. Supply chains have already been impacted following the shut-down in China with more yet to come.  

Businesses should factor in contingencies as port and container backlogs are slowly cleared, particularly on their seasonal stock. 

FORECASTING DEMAND

Seasonal businesses could be significantly impacted if disruption coincides with demand, resulting in over-capacity or excess stock.  

To help reduce risks, flexible arrangements on purchases and staffing should be considered. 

Business to Customer (B2C) businesses should expect that, as demand drops, customers may wish to postpone large financial commitments and purchases, and will be reluctant to commit to events that they are unsure will go ahead.  

As consumers may behave differently during a disruptive period, such as avoiding gatherings or working from home, this should be factored into projected demand. 

Business to Business (B2B) companies need to look at their customer base to understand how they could be exposed in terms of the sales pipeline, stock and receiving payment, whilst maintaining existing customer relationships.  

SERVICE DELIVERY MODELS

Critical activities, key customers and core people can be identified through an organisational business impact assessment.  

Alternative service delivery options should be explored, for example, home delivery or in-home services. 

Management will also need to ensure that they understand the terms and conditions of employee contracts and agree on how they wish to engage with their workforce should this arise. 

Businesses may need to contract and engage additional or alternative staff or suppliers if their regular workforce is unavailable, considering outsourcing where necessary could help in this situation. 

Some sectors have already felt the impact of both the spread of the virus and the actions taken to control it, such as travel and tourism, and those dependent on operations or supply chain from China and Northern Italy.  

It is vital that as a business owner, you understand the impact these risks could have on your cash-flow, and scenario plan to put mitigating action plans in place to protect your businesses.