Essential Cash Flow Management Strategies for Small Businesses During a Crisis

- by kat_dev

Cash is QUEEN! For small business owners and entrepreneurs, mastering cash flow management during a crisis is critical to survival. When your cash inflow slows down, closely managing the cash you have on hand becomes more important than ever. The key to effective cash flow management during a crisis lies in understanding your unique business situation and making informed decisions.

Why Cash Flow Management is Essential During a Crisis

During a financial crisis, knowing exactly how long your cash will last can guide you in making the best decisions for your business. Whether sales have slowed down or come to a complete halt, effective cash flow management will help you navigate these tough times.

The goal is to understand what your business can currently take on or how big of a financial hit it can take WITHOUT going into debt or getting another form of financing.

Here’s a simple 3-step process to estimate how long your cash will last and what your next steps should be.

Step #1 – Determine Your Average Monthly CASH Operating Expenses.

The first step in cash flow management during a crisis is to calculate your average monthly cash operating expenses. This includes essential costs such as salaries, rent, and software subscriptions.

Example:

Salaries  –                                 $2,000

Rent –                                        $1,000

Software –                                $2,000

Total Monthly Cash OpEx      $5,000

 

Step #2 – Calculate How Long Your Cash Will Last

Next, take the amount of cash you have on hand and divide it by your average monthly cash operating expenses. This will give you a clear picture of how many months you can continue to cover your expenses without additional income.

Example:

  • Cash on Hand: $10,000
  • Cash on Hand ÷ Average Monthly Cash Operating Expenses = # of months until cash runs out
  • $10,000 ÷ $5,000 = 2 months

 

Step #3 – Interpret and Plan Your Next Steps.

Based on your result in Step #2, 2 months is an estimate of the number of months you can go with no sales and still cover your monthly cash operating expenses.

Now, what’s next?

With this information, you now know how long your current cash reserves will last if sales completely stop. Effective cash flow management during a crisis means using this data to determine your next steps:

  • Explore Financing Options
    If your cash reserves are insufficient, consider and prioritize applying for grants or forgivable loans. You don’t have to pay these back if you stay within the requirements. Know that SBA loans or any other loans are NOT guaranteed. Businesses are getting denied loans, even SBA loans, so it’s incredibly important that you submit a strong loan application from the start to position your business to have the greatest chance of success at being approved.
  • Restructure Costs
    If you believe you can sustain your business without additional financing, then great! You can focus on restructuring your costs. Effective cost management is a vital component of cash flow management during a crisis, ensuring that your business not only survives now but thrives in the future.
  • Assess and Act
    If you’re unsure about the best course of action, well, guess what? That’s okay too! Take time to assess your situation. Effective cash flow management during a crisis isn’t just about immediate actions; it’s about assessing your current situation and seeing what you can take advantage of right now, and what makes the most sense for your path forward.

No matter what you decide once you determine your amount of cash on hand, the one thing I don’t want you to do is to get so overwhelmed with everything happening that you become frozen to taking action. You need to act, there’s no doubt about it, but it’s just about what’s the best course of action for YOU and YOUR business during a cash flow financial crisis.

If you need help with creating Financial statements for your loan and grant applications, If you think you need to restructure your costs (for most businesses, no matter if you go for loans or grants or not, this will be critical), or if you’re unsure of what approach is best for you right now, reach out via hello@financesavvyceo.com.  Let’s assess your current situation, see what you can take advantage of, and determine options for your best path forward.

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