7 strategies for businesses to survive a COVID-related cash flow crisis

RENO, Nev. — There are many reasons why small businesses fail — from being out-muscled by the competition to finding a weak market for their product or service.

The most common reason small businesses die, however, is a problem with cash flow — according to a 2017 study by Business Insider, 82% of small businesses fail because of cash flow problems.

That already unsettling statistic will likely rise this year due to the coronavirus pandemic, which has slammed the brakes on the U.S. economy.

Consequently, small businesses in Northern Nevada and beyond have scrambles to adjust operations, cut expenses and maintain positive cash flow.

“Cash flow management should not only be important in times like these, but constant in any business operation,” Monica Coburn, CEO of Nevada Business Advisors, said during a May 8 webinar hosted by Nevada Industry Excellence.

She said many small businesses' cash flow shortages largely stem from over-forecasting sales, failing to track bills, or incorrectly allocating resources.

Coburn laid out seven strategies small businesses should have in place for handling a cash flow crisis.

No. 1: Adjust your business ‘plan' to improve profit margins

Coburn said that businesses should look at each category within the company to determine which areas are the most and least profitable.

This, she said, could lead to a company adjusting employees' shifts, “firing” clients costing them more money than it previously realized, or rethinking their marketing strategy.

“And sometimes it means engaging other members of your company that may have a different perspective — to see what's going on, to see what's not working,” she added.

No. 2: Accelerate receivables and process

In order to speed up cash flow, Coburn recommends companies send invoices early and often, and focus on clients that are past due.

Moreover, she advises to ask new customers for a deposit, partial payment upfront for payment in full.

“This is where I see companies get into trouble … because they wait,” she said.

In addition, Coburn said businesses can speed up cash flow by making it easier for clients to pay, such as accepting credit card payments, adding a payment feature to their website, and enabling mobile payments.

No. 3: Negotiate payables

Coburn said companies should reach out to their banks and find out if they can get their payments deferred or have their interest rates reduced on their credit cards.

“Banks are in a position where they almost expect it, especially with what's going on, to have customers contact them,” she said. “Make those phone calls, there's nothing wrong with that.”

No. 4: Borrowing options

“Money is cheap right now,” Coburn said.

This, she added, is why businesses should consider getting a working line of credit versus using their own cash reserve to have a “security blanket” if they need it.

“Ask for the money when you don't need it, especially in times like these,” she said. “It's been a savior for many of these businesses.”

No. 5: Raise capital and increase revenue

Whether it's applying for R&D tax credits or grant opportunities, businesses can raise capital if they have a new product they are innovating and targeting to a specific industry, Coburn said.

Another way to raise capital is crowdfunding, which Coburn said is a “great way to share your story on a global platform.”

In terms of generating a recurring revenue stream, Coburn said companies should ask look into creating a subscription model for a service or product.

No. 6: Slash and reduce expenses

Companies should closely review all expenses — from payroll to utilities to supplies — and then meticulously prioritize them, Coburn said before adding: “What's essential for your operations and what's non-essential? What's more of a want than a need?”

Reviewing processes and efficiencies, she said, can also shine a light on what makes better sense being outsourced.

“An example is payroll,” she continued. “If you're doing your own in-house payroll maybe that might be something to look at (outsourcing).

“It would be an added expense, but they assume the liability if your payroll taxes are miscalculated; they can file for your modified business tax; you have a recording that is going to be much more accurate.”

She added that companies should look into temporarily or permanently eliminating “unnecessary expenses” such as business travel, memberships, subscriptions and gifts.

No. 7: Sell and reduce assets

Companies with inventory, raw materials or equipment collecting dust due to the economic slowdown should considering selling their excess items, Coburn said.

“I've been to many facilities and I see pieces of equipment that are just sitting there and nothing is happening,” she said. “Either it needs repair or they have no further need, but it's depreciating in value and not doing any good just sitting in their warehouse.”

In addition, businesses should examine if they have excess space they could sublease or even downsize to a smaller facility, she said.