The COVID-19 took the world by complete surprise. This pandemic has pushed the global economy into a recession of unpredictable duration. The global economy is struggling hard to strengthen the flow of credit amid declining growth.
As the scope of COVID-19 continues to unfold, the anxiety among businesses remains high. This has created new challenges in the business environment. With complete lockdown and strict social restrictions, a wide range of businesses like travel, tourism, hotels, restaurants, manufacturing, and more are severely hit. Even the most stable companies are facing uncharted waters. The solution to make businesses survive and avoid a prolonged economic crisis is to maintain the flow of liquidity to businesses.
A business's liquidity comes from sales. It can be increased by drawing on reserves, selling excess assets, getting a loan from financial institutions, friends or family, and liquidating your emergency fund. The COVID-19 pandemic has a direct impact on liquidity. Because, in the first place, the income of the businesses as well as the individuals has decreased significantly. Secondly, many financial institutions, including banks, have stopped providing loans to businesses or individuals. Thirdly, with just a few buyers around it is impractical to maintain liquidity by selling assets.
Therefore, to prepare for this unforeseen situation and maintain the financial stability of your business here are a few tips:
1. Liquidize your emergency fund
If there is one thing that COVID-19 has taught us, it is that it is always best to be prepared for the unanticipated. Many people working from paycheck-to-paycheck always maintain an emergency fund to meet out personal emergencies. Business owners should also have such a contingency fund. If you have such an emergency fund already in place, it can serve as the lifeline of your business in this situation. It can help you cover unexpected expenses and survive this crisis.
2. Go digital
With strict lockdown, people are finding it difficult to come out of their homes to purchase even the essentials. This has urged them to make purchases online and pay digitally. By digitizing your business, you can boost digital payments which can enhance the cash flow of your business.
3. Forecast cash flow and boost liquidity
To address the financial issues during this crisis, experts recommend generating a 13-week cash flow forecast to take stock of the likely scenarios. This cash flow forecast should be stress-tested and should include all the fixed and variable expenses. You can enhance the cash flow by offering discounts to customers and focussing more on customers who make online payments. You can also boost the liquidity through a second mortgage or a quick business loan.
4. Review your investments
This is a perfect time to do a risk analysis of your investments. With cash flow forecasts in mind, consider what really needs to be paid for the nearing term, what capital investment can be postponed, what should be reassessed, and what investments can be used for creating a competitive advantage. You need to stabilize your portfolio.
5. Take advantage of government deferrals
The government has allowed an extension for both businesses and individuals to income and payroll-related tax filings for 2020. This can help you maintain liquidity. You can look through cash flow budgets and plans to defer capital improvements and other projects that are not considered essential. Matching your business cash inflow with cash outflow is a critical element to maintain financial stability during this crisis.
6. Consider alternate financing options
Depending on your cash flow forecast, you may also need to consider ways to generate fast cash to run your business. While the banks and other financial institutions have stopped offering new loans, you may consider getting quick loans from payday loan lenders. They offer quick online payday loans without any stringent credit check. There are also other financing options like joining hands with your merchandisers to enhance cash flow over the extended supply chain.
7. Extend payables
One of the important ways to preserve your liquidity is to take a longer time to pay your suppliers. You can create an agreement with your supplier that can be beneficial for both. Without such mutual agreement, delaying the payment can affect your integrity and will have a long-term impact on your business.
8. Review your business insurance policies
After the SARS epidemic, many business insurance policies don't cover the losses that occur due to a global pandemic. Some insurance generally covers losses arising from business disruptions. Your business insurance plays a major role in maintaining your fiscal stability. This is the time to review your insurance and see if there are any holes in your coverage. With the help of your insurance provider, you can recover faster from your losses and manage your business.
9. Review your variable costs
Rather than focussing on your fixed costs, reducing your variable costs can help in improving your cash inflow quickly. For example, you can reduce the spending on training, entertainment, hiring, traveling, and more. If labor is a significant cost line of your business, reduce the cost by removing contract employees and distributing the work among permanent employees.
10. Create a recurring revenue
Integrate recurring revenue into your business to preserve revenue stability. Recurring revenue is where customers pay a fixed amount on a monthly basis for your product or service until they unsubscribe from it. This is a good marketing tactic and is a guaranteed source of income.
The Bottom Line
Finding financial stability in the face of an uncertain market should continue to be the main challenge for many businesses. While taking care of health and maintaining isolation have become paramount, you also need to take precautions to manage your finances by making necessary modifications and adjustments. You can follow the precautionary steps mentioned above to further maintain the liquidity and financial stability of your business. This can help you survive the current climate and rebuild their business faster after the COVID-19 crisis comes to an end.
