Crisis Is the Mother Of Better Cash Flow Management
The current pandemic has not fared badly as a ‘good’ crisis, considering the lessons it has brought out for individuals, organizations and countries with the challenges. Some of the major challenges for businesses—big or small—have been operational paralysis, staying afloat and being prepared to bounce back.
Breaking it down, expenses in the form of payments to as well as retention of employees, sustenance of infrastructure in terms of rent and keeping the supply chain running have been some of the concerns. All of these shout for one common thing—cash flow. World over, most SMEs have reportedly had cash reserves only for two to three months.
This has stimulated cash-strapped businesses to thoroughly review the otherwise for-granted activities that had not been translating into returns—some even causing losses. This has highlighted the long standing need for multiple reforms to manage the cash flow better.
Categorization of expenses
You need to continually reassess, keeping pace with the changing situation, to forecast the requirement of liquidity. This should factor in available reserves, cash dues out and receivables in the foreseen future. All expenses must be categorized in a descending order of priority and all but the indispensable must be retained. The most essential would include basic infrastructure, manpower and operations. At tier two rented space could be dispensed with, if remote management is possible.
The obvious choice of ‘assets’ that may be taken out are costly assets with little rationale apart from image building, grandeur or ergonomics. It’s not that you have to eliminate all of these instantly, but a gradual toning down can be planned. HRD related expenditure like in house training activities—especially periodic ones—may be stopped and externally administered expensive courses scheduled ahead may be put off to future. You may have to continue with only the most essential on boarding exercises for freshly recruited human resource. Certain lavish provisions and conveniences along with their maintenance costs, which might have set earlier, can be draining and must be curbed completely for now.
Minimize fixed costs and if possible, replace some by variable ones. An example of this could be de-hiring of spaces which might now remain unpopulated owing to increase in online work. In some cities, need-based plug-in offices may work out well enough for certain types of businesses. At the same time, stern audit and rationalization of existing variable costs should be done. For example, not so necessary travel, fresh hiring, entertainment & training activities can be curtailed.
Sources of funds
Normal circumstances have businesses concentrating on the profit-loss statements. While in a global financial crisis such as this, it is more important to stay afloat. Thus, it is important to focus on the other business document, i.e. the balance sheet. Working capital is where businesses feel the pinch. It includes the inventory, receivables and payables. Extending of the payables’ due date and speeding up of collections can considerably help. The latter may even be done by offering (affordable) discounts for early payments. Though both may not always be workable, proactive communication with parties at the other end makes the difference and they can bail you out of particularly difficult moments, on a reciprocal basis.
Credit is another source of revenue. Here again, your allies in business, like suppliers or those who you supply to can be the best source of ‘operational’ credit, which basically would fall in the same category as payables talked of above. Since both parties have a finger in the same pie, they should be willing to go as far as they could, to increase its size.
Talent retention and business relationships
Difficult times lived together have the rare potential to firm up commitments and deepen a sense of belonging. While cutting costs, it is important to identify what not to touch. For instance, reduction in employment of contract labor will be alright with redistribution of work among the permanent workforce. Layoffs must be a last resort, as they entail loss of precious goodwill and morale, both extremely difficult to redeem.
As for salary cuts, they should be spread across the spectrum, with the top rung leading to be a visible example of frugality. Fixed percentage cuts will be a foolish course to take, because while half salary may not be an adverse thing for someone taking home a couple of lakh rupees every month, it could be a debilitating blow to those already on subsistence compensation.
Compassion with suppliers and vendors too assumes as much importance as that with employees. There is no need to take defaults in timeliness or other deliverables too harshly in such emergent situations. With trust fostering communication, win-win ways can be worked out with external partners in business. Nurturing of business relationship during this trying period would only help the stakeholders emerge with better bonding and working chemistry.
The long-term basics
Over time, building a culture of mutual respect, honor and valuing talent with assured continuity and progression may create a certain magnetism about the enterprise, which would retain worthy talent at reduced costs. It means that even if your compensation is not competitive in the industry, other factors should more than fill in for the same.
Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. From improving cash flow…. to increasing staff productivity…. to scaling for growth, these periods of transition — and so many more — provide both challenges and opportunities. Managed effectively, change can become a productive force for growth. The Block Group harnesses that potential, turning roadblocks into building blocks for women-owned businesses.