5 business choices to plan for a post-corona economy

Part 1: Cash is king. Follow the money.

Keep your business alive and plan ahead. In a few words:

• Predicting a next Covid-19 is not the goal.

  The goal is to predict the fact that things will go wrong and plan for that.

• “Never let a good crisis go to waste” as Churchill said.

  The definition of a crisis is just a good opportunity to chance your strategy.

• Reinventing yourself and your business can be done subtle and still be very effective.

“Have you made the right decisions?” was a question I posed in a previous article “5 practical business changes to survive Covid-19” which covers five important changes to defend your company and to prepare your business for changes due to the effects of the crisis.

Plan ahead for a post-corona economy

In this article I provide you as a business owner, manager or board member with a list of actions that you may consider to apply for your business. Let your business withstand the current crisis; stay alive and plan ahead for a post-corona economy. Let´s talk about how to let your business thrive.

While answering the question whether you made the right decision for yourself and your business, there are a few things that I recommend considering and evaluating while you are planning for the post-corona economy:

·  Evaluate how agile your company has been and needs to be now
· Stay true to your values and vision and make balanced decisions
·       Manage and control your cash flow strictly
·       Re-evaluate your treasury strategy, the long-term view of your cash flow
·       Act very strategically for the next year
·       Prepare your business for another storm and for the long-term effects
·       Reinvent yourself and your business, start subtle

“The definition of a crisis is just a good opportunity to change your strategy.”  

Following are the business choices and actions regarding the theme Cash Flow Management as part of treasury management. Next articles will cover Treasury management in a broader perspective and how to act when another storm comes.

Business choice 1:
How to manage & control my business´ cash flow?

Cash is King right? Managing cash flow is one of the most important tasks of the treasury function of a business, more so in times of crisis. The company´s goal is no longer to manage credit; it is to control when money comes in and goes out. This may seem similar, but it is in fact quite different: the former follows up on existing procedures. The latter takes control by resetting the standards of engagements with clients.

The main goal: improve when money comes in and when it goes out

While working on improving the financial health of your company the goal of your cash flow management is to improve when money comes in, and when it goes out. That is the basic essence. Hereby a few suggestions a business should consider.

Though these are not all new, it is good to re-evaluate how to handle each item, and to reform or tweak the cash management process for your business where needed:

1- Manage your bank relations and do not wait too long before asking a loan

The fact that a company is foreseeing and managing cash shortfalls enables the company to become aware of the problem as early as possible. Banks prefer lending before you need it, preferably months before, therefore apply for a business loan in an early stage.

When the reason you are caught short is that you failed to plan, a banker is not going to be very interested in helping you out. Another benefit of early lending is that the loan can partly be used for growth and reforming your business rather than just for emergency reasons.

2- Your supplier relations based on trust and understanding

Realize the importance of communicating clearly with your suppliers as well and make them aware of your business´ financial situation. When a delay in payment may occur in the near future trust and understanding is needed. This is accomplished through clear and honest communication.

If a business is clear on their shortage of cash, invoices should be paid later. Though more preferably by agreeing a longer payment term for you supplier beforehand. This maintains a stable relation. You have to do it together now and post-corona.

“Predicting a next Covid-19 is not the goal. The goal is to predict the fact that things will go wrong and plan for that.”

Moving ahead when a business is shifting their business model and starts providing additional products to additional markets, new suppliers will emerge. When this occurs focus on flexible payment terms, not just focus on the lowest price when choosing these suppliers. This may positively affect your cash flow more than just the lowest price.

3- Determine clearly and exactly when money is in your hands

For each new order being placed, you should determine when payments exactly will be received. With some clients you should go as far as agreeing on down payments. Communications should be clear and leave no room for wrong interpretation. Therefore, also consider subtle changes in your writing, e.g. more clarifying wording in your invoices and communications like ´30 days after delivery we have received our payment´ instead of a technical term like ´net 30´.

Do this while valuing the client relation and staying in frequent and open communications makes some uncommon measures possible in uncommon times. Companies should also consider evaluating whether some of the following measures are suitable for their business:

·  Offer discounts to clients who pay invoices rapidly
· Ask specific clients to make deposits when they place an order
·       Cash on delivery is an alternative to limit slow-paying clients
·       Do credit checks on all new and current clients
·       Issue invoices instantly and follow up immediately and frequently
·       Track accounts receivable and manage the slow-paying clients tightly
·       Use mobile payment solutions and get paid faster

4- By all means: increase short-term cash

It seems a logical statement, the importance however is to address it and act on it; do not leave it in the air. Make someone responsible for the inventory of all options and go through this with your team to brainstorm on how to convert low hanging fruit into cash. Some suggestions to consider:

Sell all assets you do not need for your current and changing business.

Start by making a list of everything your company owns. This includes old inventory, business equipment, such as computers, phones, furniture, art, vehicles. And also real estate, security deposits with landlords, utilities, prepaid insurance fees you can get refunded, works in progress that could have some value, intellectual property like patents, and trademarks.  

As you start selling these assets, you should keep a good record for accountancy and declaration reasons and of course to have a tight control for the reason it all started: your cash flow.

“Reinventing yourself and your business can be done subtle and still be very effective.”

Move to renting instead of owning certain types of assets

In case your company owns assets and equipment you should consider getting quotes to convert these assets into a lease. This way you receive cash now and spread the burden over time. You may also want to consider going flexible on part of your office or your warehouse.

Renting out a part of the office since staff will be partly working from home or because your adjusted business model needs less stock then before. Flexibility of space also enables more easy relocation and expansion later, plus you will instantly lower the maintenance and service costs.

In this time of crisis these instant cash impulses are the main reason to consider leasing but let´s look at some other benefits for your business when later moving into the post-corona economy. Firstly, changing to leasing ensures that you can use the latest, most upgraded equipment, especially if you work with equipment that needs regular upgrades. Other benefits may be the included specialist support on the equipment and the opportunity to purchase the asset at a reduced cost after the lease expires.

Another important reason these days is that it is harder to predict how long you are going to use certain equipment, because of down-scaling business in one area while up-scaling business in another area with different requirements for that type of asset.

Sales invoices being paid immediately: factoring your invoices

Factoring your invoices simply means selling your outstanding and new invoices to a factoring company and immediately receive the amount minus a fee. This fee may be flat, flexible per month, or a combination of e.g. 5% flat and 1% for each additional month that the factoring company has not received the money.

Factoring eliminates the collections process and therefore solves the issue of late-paying clients. As a result, no collection department and staff are needed, which can be offset against the factoring fee.

Another benefit of factoring is that it brings in the money without taking on new debt from a bank to finance short-term cash needs. When getting a bank loan is now complicated for your business, then a good alternative would definitely be to utilize factoring services.

5- Keep tweaking your cash management

In today world it has become even more important to continuously adapt and tweak the cash management process. Always be alert and ready to improve the cash handling systems, including changing responsibilities of employees and create trained eyes for detail of when money comes in, and when it goes out.

In summary, what does the article cover?

This article discusses the goal of cash flow management; to manage when money comes in and when it goes out. Several solutions to improve the cash flow are discussed. These include solutions such as managing your bank relations, build-out supplier relations based on trust, be very clear about when exactly your money is in your hands. Several methods to increase short-term cash are also covered in this article.

In all reality, all these cash flow activities are part of the treatment for the crisis that we are all in.

It is unfortunately not the cure….

Stay tuned for additional business choices to plan for a post-corona economy. If you have any questions, please feel free to reach out via LinkedIn or via my website.

Joris van der Heijden is Controller for a day. He provides guidance and implementation of financial and business control for European small-medium-sized businesses (SME) in Spain and The Netherlands.