With Singapore headed for a recession and stocks falling worldwide, small business owners are grappling with uncertainty. There are many reasons for cash flow problems in a fragile economy, and not many business owners can say they have more money coming in than they have going out.
While it may not be possible to avoid these challenges altogether, managing cash flow effectively can empower you to cushion the dire consequences of cash flow problems. Here’s how to avoid being cash flow negative – or even become cash flow positive – in a crisis.
Create a short-term business survival plan
Break down your business plan, processes, upcoming operations, income, and expenses in your plan. If applicable, use job costing to review your business’s profit and loss statements and margins. Identify the lion’s share of expenses and profits in products, services, clients, and labor. The goal is to stay open by scaling back and slowing down.
Having this information handy can give you an accurate cash flow projection under normal circumstances. In extraordinary situations, having this information handy can help you predict how scaling back will affect your business.
For example, a hair salon owner might adopt procedures like sanitising hourly, offering virtual consultations, and delivering colour kits to keep their doors open and cash flowing.
Reduce business expenses
While this isn’t easy, your survival plan will bring essential and non-essential expenses into the spotlight in a cash flow crisis. Depending on your circumstances, a few creative changes might help you cut down on business expenses and get back to cash flow positive, or at the very least cash flow neutral.
- Discontinue non-essential services temporarily
- Offer virtual or delivery services
- Cancel or reduce premium services
- Move to a lower-cost supplier temporarily
- Reduce operating costs
Speed up accounts receivable
It sounds simple, but the effects of faster payments are quite profound. And there’s a lot you can do to get paid faster.
- Send your invoices earlier.
- Break up payments into project-based weekly or bi-weekly installments.
- Request payments from past-due accounts.
- Ask for a deposit or partial payment upfront.
- Encourage or incentivise early payments.
- Accept multiple payment methods.
It’s also a good time to collect any unsettled debts. If you’re finding you have a lot of outstanding debts, you can sell your debt through invoice factoring. In this case, the factoring company will pay you a percentage of what you’re owed. You’ll have cash in hand, while the company settles your client’s debt.
Negotiate accounts payable
Reducing or negotiating expenses is another way to encourage positive cash flow. With more working capital, you can prioritise expenses and prevent cash flow problems from spiraling out of control.
Start with utility providers and vendors who have a history with you. Be honest and willing to talk about flexible terms and payment options. If your cash flow is strained severely, be strategic and selective about the payments you make. The legal consequences of not making payroll, for example, far outweigh those of not paying your phone bill.
Consider your borrowing options
Injecting money into your business by borrowing is another way to balance your cash flow. Ideally, you opened lines of business credit when your financials were more positive. But if that isn’t the case, ask your current financial service provider what they can offer before turning to other lenders.
Also look into what COVID-19 relief measures are available to you. The Singapore government has outlined a number of initiatives – including cash flow assistance for businesses – to cushion the impact from the economic downturn.
Although borrowing money can seem like a tempting lifeline during a cash flow crisis, there are some caveats. First, you’ll need to have a documented business plan and cash flow forecast to show lenders. Second, interest rates and other terms and conditions can have long-lasting consequences. So read the fine print before borrowing. Finally, if there’s an internal flaw in your business, a fresh injection of cash won’t solve cash flow problems. It will only delay them.
QuickBooks can help solve cash flow problems for small businesses by making it easy to reconcile your accounts, generate reports and more – so you always have a clear picture of your cash position. Try it free for 30 days (no credit card required).