Businesses in South Africa are currently trying to weather the COVID-19 pandemic and associated lockdown, and it’s likely many will face financial losses. Here we offer tips for handling a cash flow crisis, in case they help.
Acting early: taking steps to prevent a cash flow crisis
Taking certain steps can help ensure you don’t run into a cash flow crisis in the first place.
However, it’s not possible to predict every circumstance. The current pandemic is certainly proof of that.
Even with advance planning, factors outside your control – such as clients delaying payments or cancelling agreements – can lead to a cash shortage.
Draw up a budget
There’s no time when it’s more important to create a clear budget than when funds could run low.
Know what’s coming in and what’s going out, and what kind of buffer you have in place. Then you can make informed decisions.
You could be left waiting another month for payment if you send out invoices only over the last few days of the month, when a lot of businesses have already made their payments.
Invoice early, and follow up. It’s a priority to get cash flowing in.
Channel funds into savings
For many businesses, the economic effects of the COVID-19 crisis are going to become apparent only over the coming months.
If you’ve got funds coming in or some extra cash already in the bank, now’s the time to shore it up. Keep whatever you can in savings so you’ll have something to fall back on when necessary.
Take advantage of small business relief measures
Our Government is offering a range of small business relief measures, designed specifically to help businesses handle cash flow problems resulting from the COVID-19 crisis. Find out what assistance you may be eligible for, and apply as soon as you can.
Once you’re facing a cash flow crisis
Don’t panic. Stay calm, and be objective. Identify measures you can take. Then begin by implementing those that are the least drastic.
Don’t make potentially irreversible changes, like retrenching employees or letting go of important assets, until you absolutely have to.
Cut unnecessary expenses straight away
Review bank statements for the past couple of months to help identify any expenses you can cut. For example, you may be able to pause or cancel subscriptions without hurting your business.
Especially during a short-term crisis, employees may be willing to accept partial salary payment, or a delay in payment.
Be aware that this is a drastic measure for any business. However, it might be worth considering if the likely alternative is job losses.
Renegotiate payment terms with suppliers
Get on the phone to suppliers and see if you can come to a workable arrangement. For example, it might be possible to extend a payment deadline or even to secure a significant discount.
If you go out of business, they’ll lose business too. So it’s in both your interests to come up with a solution to a cash flow problem.
Follow up delayed payments
Cash flow problems are often caused by late or delayed payments.
Everyone is facing economic challenges at this time. However, if your business is owed funds and it can’t afford to operate without them, follow up. Persist until payments are made.
Check if you can reduce service costs
It’s worth checking if you can get better deals from your existing service providers – for example, for data and internet use, insurance and banking services.
Also shop around in case other providers are offering better deals.
Manage excess stock
If it’s costing money to store inventory, it may be possible to bring in cash by selling some stock at discounted prices. Inventory storage costs are a common cause of cash flow crises.
Dispose of assets
It may be possible for your business to sell or even hire out assets such as machinery or equipment, vehicles or storage space. This could help bring in needed funds.
It’s worth considering whether you can bring in extra cash by increasing your prices.
The viability of doing this will depend on your situation. For example, it will be determined by factors like the nature of your business, the prices your competitors are charging and the way existing clients are likely to react.
Offer discounts for early payment
It might be possible to encourage customers to make advance payments by offering some kind of discount. For instance, you might offer a 5% discount for payments made before a certain cut-off date.
What we offer at The Workspace
Once the lockdown ends, your business might be able to save significantly on the costs of running an office space. This might help in preventing or handling a cash flow crisis.
At The Workspace, we offer affordable, fully serviced offices and coworking. Everything you need to run a business – from fibre internet and reception services to meeting rooms, printers, kitchen facilities and cleaning services – is already set up. So you can simply move in and focus on your business straight away.